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Legislative Assembly","@language":"en"}],"DateAvailable":[{"@value":"2018-07-03","@language":"en"}],"DateIssued":[{"@value":"[1983]","@language":"en"}],"DigitalResourceOriginalRecord":[{"@value":"https:\/\/open.library.ubc.ca\/collections\/bcsessional\/items\/1.0368890\/source.json","@language":"en"}],"FileFormat":[{"@value":"application\/pdf","@language":"en"}],"FullText":[{"@value":" report of the\nAUDITOR GENERAL\nfor the year ended March 31st. 1980\n(Si\nProvince of British Columbia\nOffice of the Auditor General\n British Columbia Cataloguing in Publication Data\nBritish Columbia.     Office of the Auditor General.\nReport  of the Auditor General.   \u2014   1980\nAnnual.\nReport year ends Mar. 31.\nISSN 0708-5222 = Report of the Auditor General\n(Victoria)\n1. Finance, Public\nPeriodicals.\nBritish Columbia \u2014Accounting\nHJ9921.Z9BT3\n354'.711'007232\n Province of\nBritish Columbia\nOffice of the\nAuditor General\nProvince of British Columbia\n8 Bastion Square\nVictoria\nBritish Columbia\nV8V1X4\nThe Honourable Hugh A. Curtis\nMinister of Finance\nProvince of British Columbia\nI have the honour to transmit herewith my Report\nto the Legislative Assembly for the fiscal year\nended 31 March 1980 for submission to the Assembly\nin accordance with the provisions of Section 10(1)\nof the Auditor General Act, R.S.B.C. 1979,\nchapter 24.\n'-^XS&r*7\n-e 93?+**'S^\nErma Morrison, C.A.\nAuditor General\nVictoria, British Columbia\n30 March 1981\n  Table of Contents\nHighlights    1\nPART 1:\n1. Legislation   7\n2. Accounting Policies and Practices   9\n3. Report and Comments on the Financial Statements    10\n4. Comments on Internal Control  17\n5. Public Bodies   22\n6. General Matters    24\n7. Status of Findings and Recommendations Contained in Previous\nReports of the Auditor General     28\nPART 2:\n8. Comprehensive Audit    39\nPART 3:\nt\nI  9. Financial Management and Control Audits     99\nAppendices  137\n 1\n HIGHLIGHTS\nHighlights\nThose who have read my two previous Annual Reports to the Legislative Assembly\nwil I recognize the change in focus in the one I now present for the 1980 fiscal year.\nMy first Report, for 1978, dealt mainly with the responsibilities of my Office and its\nimmediate statutory audit obligations. The main thrust in that year was to establish my\norganization and to plan and conduct the first external audit of the Government's\naccounts. In that Report I identified four major areas of concern. These were the urgent\nneeds for:\n\u2022 replacement of obsolete financial legislation;\n\u2022 establishment of appropriate and consistent accounting policies;\n\u2022 improved disclosure of the obligations of the Government for guaranteed debt;\nand\n\u2022 improvement and strengthening of financial internal control systems throughout\nGovernment.\nIn my second Report I continued to express my deep concerns in these four major\nareas and to report on the results of the audit work of my staff. In addition that Report\nprovided background information on the concept of comprehensive auditing and the\ndirection I proposed to take in exploring its potential use and value in my work.\nFollowing the course proposed last year, this 1980 Report presents the results of the\nfirst comprehensive audit conducted by my Office. The Ministry of Human Resources\nwas selected for this initial project with one of its largest and most significant programs,\nthe Income Assistance Program, being chosen for concentrated attention. We received\nthe full cooperation of Ministry personnel. The reportand recommendations, together\nwith the comments of Ministry officials, are published as Part 2 of this Report. The\nresults of this project and the response it received from the Ministry reinforce my early\nviews of the potential value of this audit approach.\nIn 1980 my Office further extended its audit applications by conducting financial\nmanagement and control audits in four Ministries, one of which formed part of the\ncomprehensive audit project referred to in the previous paragraph. Summary reports,\ntogetherwith recommendations and comments from theMinistries concerned, form\nPart 3 of this Report.\nIn Section 7, the status of comments and recommendations contained in my Reports\nfor 1978 and 1979 is tabulated and referenced for easy access by the reader. Comments\non progress in the major areas of concern are also dealt with in the main body of this\nReport and are summarized hereunder:\n\u2022 it is expected that a new Financial Administration Acfwill be introduced to the\nLegislature in 1981;\n\u2022 the Government has conducted a thorough review of its accounting pol icies and\n REPORT OF THE AUDITOR GENERAL\npractices, and anticipates that changes arising from this review will be reflected in\nthe financial statements for the 1981 fiscal year;\n\u2022 the Government has provided for its ongoing commitment to the interest costs and\nretirement of the British Columbia Railway Company's debt by authorizing\nfunding in the 1981 fiscal year to be applied to the debt servicing charges of the\nCompany; and\n\u2022 some progress has been made to improve major accounting systems and upgrade\ninternal controls, but further efforts in this regard are required.\nWhile it is gratifying to note that positive initiatives have been undertaken in many\nareas, I continue to urge that action be taken with the least possible delay. Where\ncorrective action has not yet been undertaken I repeat my observations of prior years.\nThe comments and recommendations contained in th is Report have been reviewed\nand discussed with the various officials responsible. The cooperation of officials within\nthe Government and the various public bodies audited is recognized with appreciation,\nas is the strong support, enthusiasm and hard work of the members of my staff.\nERMA MORRISON, C.A.\nAuditor General\nVictoria, British Columbia\n28 February 1981\n PART1\n  Table of Contents\nPART 1:\n1. Legislation      7\n2. Accounting Policies and Practices     9\n3. Report and Comments on the Financial Statements    10\nReport on the Financial Statements     10\nComments on the Financial Statements   12\n4. Comments on Internal Control   17\nGeneral Comments  17\nSpecific Control Deficiencies     18\n5. Public Bodies    22\n! 6. General Matters    24\nOrganization and Activities of the Audit Office   24\nPublic Accounts Committee     26\nCanadian Conference of Legislative Auditors    26\nCanadian Comprehensive Auditing Foundation   27\nAdvisory Council  27\n|7. Status of Findings and Recommendations Contained in Previous\nReports of the Auditor General     28\n  SECTION 1, LEGISLATION        7\nLegislation\n1.1 My comments in this Section are based on the prospect of action by the\nGovernment to revise its financial legislation. The existing financial legislation in\nBritish Columbia has been one of my most serious concerns since I became this\nProvince's Auditor General.\n1.2 My Reports for the fiscal years 1978 and 1979 contained recommendations for\naction to revise the greatly outdated financial legislation of this Province. I\nrecommended that legislative action be taken with the least possible delay to\nrecognize the present needs of the Government's financial administration, with\nadequate provision for flexibility and change.\n1.3 Early introduction of legislation appropriate to current and future needs in this\narea of government administration would provide an authoritative foundation\nfor the requisite financial and control structures.\n1.4 I commend the action initiated during the past year to meet these needs. In\nAugust 1980, the Ministry of Finance released a Discussion Paper on a new\nFinancial Administration Act. A Task Force was established to receive and\nconsider public submissions and to recommend appropriate action.\n1.5 The Discussion Paper and accompanying draft legislation dealt with two principal issues:\n\u2022 the financial administration of the Government itself; and\n\u2022 the financial control of broadly defined \"public bodies\".\nBecause of the urgency I attach to the revision of existingfinancial administration\nlegislation my comments are primarily directed towards the first principal issue.\nThis emphasis also is consistent with the discharge of my responsibilities under\nthe Auditor General Act and with the recommendations made in my previous\nReports.\n1.6 As Auditor General I bel ieve that the publ ic is entitled to the fu 11 disclosure of the\nfinancial position of its government, embracing both its directly controlled\noperations and those delegated to Crown Corporations, agencies and other\npublic bodies. The mechanics of providing such disclosure, however, are far\nfrom simple. Despite an increasing awareness of the need for public accountability in all senior political jurisdictions of our country and the attempts being\nmade to meet this need, much work remains to be done.\n11.7\nTo facilitate early implementation of improved government administrative financial procedures, I suggest that priority be given to the first issue in the draft\nlegislation. Not only would this accelerate the development of an authoritative\n REPORT OF THE AUDITOR GENERAL\nfoundation for the Government's financial and control structures but also it\nwould provide time for further consideration of the issue of financial control of\npublic bodies.\n SECTION 2, ACCOUNTING POLICIES AND PRACTICES\nAccounting Policies and Practices\n2.1 In my 1978 and 1979 Reports I referred to deficiencies in the application of\nstated accounting policies of the Government and suggested the need for an\nextensive re-evaluation of financial statement presentation and the associated\naccounting policies.\n2.2 This should lead to the formulation of a full and clear body of stated accounting\npolicies, to be approved by the Treasury Board and applied consistently in the\nGovernment's accounting process and methods of financial statement presentation. I continue to regard those steps as minimum requirements to bring the\nfinancial accounts and statements of the Government to an appropriate level of\ndisclosure.\n2.3 During the 1980 fiscal year the Ministry of Finance undertook a thorough\nexamination of the Government's financial reporting practices and made comprehensive recommendations which, if implemented, would result in improved\naccounting practices and financial statement presentation.\n2.4 The notes to the 1980 financial statements make reference to these recommended changes in reporting principles and practices and to their anticipated\napplication in the financial statements of the 1981 fiscal year.\n2.5 In 1980 the Canadian Institute of Chartered Accountants published a research\nstudy, \"Financial Reporting by Governments\" and, as recommended therein, is\nnow studying the establishment of a committee to provide guidance for accounting and auditing in the public sector.\n2.6 I look forward to the development of this project to produce a consistent and\nuniform method of financial reporting for adoption by all senior Canadian\ngovernments.\n 10        REPORT OF THE AUDITOR GENERAL\nReport and Comments on the Financial\nStatements\n3.1 This Part of my 1980 Report is concerned with two aspects of the Auditor\nGeneral's responsibi I ities regarding the financial statements of the Government,\nnamely the Report on the Financial Statements and comments arising from my\nexamination of the financial statements.\nReport on the Financial Statements\n3.2 Section 7 of the Auditor General Act requires the Auditor General to express an\nopinion as to whether the financial statements are presented fairly in accordance\nwith the stated accounting policies of the Government. The report of the Auditor\nGeneral on the financial statements required by that section of the Act is\nincluded with and forms part of the Public Accounts, and is reproduced hereunder. This report is dated 28 November 1980, the day on which my Office\ncompleted the field work on which I based my opinion.\nReport of the Auditor General on the Financial Statements\nIncluded in the Public Accounts of the Province of British\nColumbia for the Year Ended 31 March 1980\nTo the Legislative Assembly of the Province of British Columbia\nParliament Buildings\nVictoria, British Columbia\nI have examined the financial statements of the Government of the Province of British\nColumbia for the fiscal year ended March 31,1980 as presented in the Public Accounts,\nand the related schedules contained in Sections B and C of the Public Accounts. These\nstatements are:\nStatement of assets and liabilities.\nStatement of revenues and expenditures.\nSummary of General Fund revenues.\nSummary of General Fund expenditures.\nStatement of net receipts and payments (combined funds).\nNotes to financial statements.\nThese statements and schedules in my opinion constitute the statements of financial\nposition, the results of operations and changes in financial position referred to in section\n7 of the Auditor General Act, R.S.B.C. 1979, Chapter 24.\n I did not examine and do not express an opinion on the following statements\ncontained in Section A of the Public Accounts:\nStatement of consolidated revenue by major sources for the fiscal years ended\nMarch 31, 1975 through 1980.\nStatement of consolidated expenditure by major functions for the fiscal years\nended March 31, 1975 through 1980.\nStatement of consolidated expenditure by objects of expenditure classification\n(grouped) for the fiscal year ended March 31, 1980.\nThese statements contain mainly supplementary information and do not constitute an\nintegral part of the financial statements on which I am required to report.\nMy examination was made in accordance with generally accepted auditing\nstandards, and accordingly included such tests and other procedures as I considered\nnecessary in the circumstances. I have received all the information and explanations I\nhave required for the purpose of my examination.\nI have relied upon information furnished by the Consulting Actuary for the Public\nService Superannuation Plan and the Teachers' Pensions Plan as to the accuracy of Note\n7 to the financial statements as presented in the Public Accounts.\nI report in accordance with section 7 of the Auditor General Act. In my opinion, these\nfinancial statements present fairly the financial position of the Government of the\nProvince of British Columbia as at March 31,1980 and the results of its operations and\nchanges in its financial position for the year then ended in accordance with the stated\naccounting policies as setoutin Notes 1 and 2 to the financial statements applied on a\nbasis consistent with that of the preceding year.\nI emphasize that this report is limited under section 7 of the Act to an opinion on\npresentation of the financial statements in accordance with the stated accounting\npolicies of the Government. Under section 8 of the Act I report separately on other\nmatters resulting from my examination that I consider should be brought to the attention\ni of the Legislative Assembly. That report will be presented at a future date.\nERMA MORRISON, C.A.\nAuditor General\nVictoria, British Columbia\n28 November 7 980\n 12        REPORT OF THE AUDITOR GENERAL\nComments on the Financial Statements\n3.3 The second aspect of the Auditor General's responsibilities with respect to the\nfinancial statements is included in section 8 of the Act. This section requires\nreporting annually to the Legislative Assembly on the work of the Auditor\nGeneral's office and on matters arising therefrom which should be brought to the\nAssembly's attention. These matters may include instances where the accounting for public funds has not been complete or accurate, internal control systems\nhave been insufficient, or public money has been expended for purposes other\nthan those intended by the Legislature. The report may also assess whether the\nfinancial statements are prepared in accordance with the most appropriate basis\nof accounting. Such matters which are relative to the financial statements are\ncommented on in this Section, while other matters arising from the work of my\nOffice are detailed in other Sections of this Report.\n3.4 My staff have brought to my attention numerous individual items to be considered for inclusion in this Report. In reviewing these audit findings I determined\nthat many were of a nature and significance which could be best dealt with at an\noperational level, and they have been referred to management for appropriate\naction. Others were additional examples of matters commented on in my\nprevious Reports and did not warrant further individual comment at this time. Of\nthe remainder, some have been reported individually while others have been\ngrouped and reported under the most appropriate general heading in this Section.\nMARKETABLE INVESTMENTS\n3.5 Marketable securities are held as investments in the General Fund (PA B2 and\nB5), Special Purpose Funds (PA B9), Superannuation Funds (PA B12\/13), and\nTrust Funds (PA B15). The carrying value of these investments in the financial\nstatements, as stated in note 2 in the Notes to Financial Statements, is the lower\nof cost or par.\n3.6 Good financial statement presentation requires that the quoted value of marketable investments be disclosed and I recommend that such disclosure be made in\nthe future whenever these values can be ascertained.\nVERIFICATION OF ASSETS\n3.7 During our audit of the financial statements of the Province we were unable to i\nsatisfy ourselves as to the accuracy of the following balances:\n\u2022 General Fund: Taxes and Other Accounts Receivable- Land sales\n(principal) $1,301,642.\n\u2022 Special Purpose Funds: Other Assets - Crown Land Fund - Real Estate j\n$3,996,796.\n 3.8 With respect to the first balance, we examined the systems designed to account\nfor land sales and leases under the Land Act, and noted the following accounting\ndeficiencies and control weaknesses:\nLAND LEASES\n\u2022 inclusion of 1981 fiscal year billings in the account balances at 31 March\n1980;\n\u2022 improper cutoff of receipts at year end;\n\u2022 netting of debit and credit balances;\n\u2022 delays in processing increases in rental rates; and\n\u2022 delays in billings, or no billings at all for a number of years.\nLAND SALES\n\u2022 no control accounts for land sales receivable; and\n\u2022 incorrect calculations of interest revenue.\n3.9 As a result of the foregoing and the lack of documented year-end procedures, my\naudit staff were unable to verify the accuracy of the reported asset balance titled\n\"Land sales (principal)\" in the amount of $ 1,301,642 at 31 March 1980 (PA B3).\n3.10 With respect to the second account, my 1979 Report stated that the Crown Land\nFund's reported cost for Federal\/Provincial projects did not agree with Canada\nMortgage and Housing Corporation's records. At 31 March 1980, $3,996,796\nremained in Federal\/Provincial project accounts. This amount is not supported\nby adequate subsidiary records, and the asset value appears to be overstated, as\nsome costs of land sold in previous years had not been removed from the\nrecords.\n3.11 To ensure that these assets are correctly stated, the real estate records should be\nreconciled and corrected as soon as possible.\n3.12 The Ministry of Lands, Parks and Housing is aware of the problems identified and\nis taking steps to improve its practices in these areas. Action should be taken as\nsoon as possible to correct these deficiencies and to ensure that these assets and\nrevenues are properly controlled and recorded in future.\nINCOME TAX COLLECTION AGREEMENT\n3.13 The Memorandum of Agreement between the Government of Canada and the\nProvince of British Columbia made under the Federal-Provincial Fiscal Arrangements and Established Programs Financing Act, 1977 (Canada) provides that the\nGovernment of Canada will collect provincial income taxes on behalf of the\nProvince.\n 3.14 The Agreement also provides that the Auditor General of British Columbia may,\nsubject to certain limitations, examine such books and records as may be\nrelevant in order to permit her to report in respect of the payments made to the\nProvince under the Agreement. These limitations are such as to prevent the\nAuditor General from examining the income tax data filed with the returns and,\ntherefore, from verifying the calculations of income taxes payable to the\nProvince.\n3.15 The Legislative Auditors of Canada, at their annual meeting in September 1978,\ndiscussed these limitations placed upon the scope of their audits and the function\nof the Government of Canada in the collection of provincial income taxes.\n3.16 A task force was formed by the Legislative Auditors in early 1979 consisting of\nrepresentatives from the offices of the Auditor General of Canada, the Provincial\nAuditor of Ontario and the Auditor General of Alberta. The purpose of the task\nforce was to review the audit work of the Office of the Auditor General of Canada\non income taxation to ensure that it satisfies the audit requirements of the\nprovincial auditors.\n3.17 Notwithstanding the limitations referred to above, and after discussions with\nmembers of the task force and officials of the federal Office of the Auditor\nGeneral, I have no reason to believe that the relevant revenue from income taxes\nwas incorrectly determined or improperly allocated to the Province of British\nColumbia.\nUNEXPENDED BALANCES OF APPROPRIATIONS\n3.18 The Legislative Assembly provides funds for government programs and operations under the Supply Act. Control of these public funds is exercised by the\nAssembly by providing in the Supply Act that \". . . any part of the money\nappropriated . . . that may be unexpended at the end of the fiscal year. . . shall\nnot be expended after that date.\" During our audit we noted two instances where\nthese provisions were not met.\n3.19 The first instance concerned the Long Term Disability Plan which was established in 1979 under the Public Service Benefit Plan Act to provide long term ,\ndisability benefits for public service employees. The legislation does not provide\nfor a special purpose fund with respect to this plan.\n3.20 In the fiscal years 1979 and 1980 transfers of $4,008,433 and $7,439,953\nrespectively were made from the Employee Benefits votes of the Ministry of the\nProvincial Secretary into an account titled \"Long term disability fund - Public\nService\". Disability benefit payments of $1,113,164 were charged to this\naccount, leaving an unexpended balance of $10,335,222 at 31 March 1980\nshown in Trust Funds-Balances (PA B15).\n 3.21 In the absence of legislative authority to hold these funds for future use, it would\nappear that the provisions of the Supply Act regarding unexpended balances of\nthese monies at each year-end were not followed and accordingly these funds\nshould not have been treated as part of the annual expenditures. The effect is an\noverstatement of Trust Assets amounting to $10,335,222 and a corresponding\nunderstatement of Revenue Surplus at 31 March 1980. In my view either the\naccounts should be corrected to conform with the provisions of the Supply Act,\nor alternative legislative authority should be provided to formally recognize the\nexistence of these unexpended fund balances.\n3.22 The second instance is concerned with grants made under the Housing Construction (Elderly Citizens) Act which provides for grant aid to nonprofit groups to\nassist in the construction of low rental housing units. During the 1980 fiscal year\nOrder in Council approval was obtained for grants to various societies.\n3.23 On 24 March 1980, the Ministry of Lands, Parks and Housing requested transfer\nof approximately $2.8 million (72% of the vote) to various lawyers to hold intrust\nand at interest on behalf of the Province, pending authorization by Regional\nDirectors of the Ministry for release of the funds to the societies. These payments\nwere charged to expenditures in the 1980 fiscal year. The required authorizations had not been issued by the end of the 1980 fiscal year, as construction had\nnot commenced on any of the projects. At 1 December 1980 only $166,469 of\nthe $2.8 million had actually been disbursed to the societies.\n3.24 In my opinion the payments in trust of $2.8 million, designated for subsequent\ndisbursement, did not constitute a valid expenditure of the 1980 fiscal year and\naccordingly this portion of the vote should have lapsed. Furthermore, these\nmonies placed in trust on behalf of the Province should have been shown as\nassets in its accounts at 31 March 1980 with a consequent decrease in General\nFund expenditure and increase in Revenue Surplus. \/ therefore recommend that\nall monies remaining in these trust accounts be returned to the Consolidated\nRevenue Fund and any expenditures already made from them charged to the\ncorresponding vote of the 1981 fiscal year. Any future claims in regard to such\nprojects should be paid and charged to the appropriate vote only when the\nexpenditures have actually been made and all prescribed procedures adhered\nto.\nWRITE-OFF OF NONRECOVERABLE EXPENDITURES\nI 3.25 The Crown Land Fund was established in 1979 by the Ministry of Lands, Parks\nand Housing Act. The unexpended balance of $229 million in the Housing Fund\nestablished under the Ministry of Municipal Affairs and Housing Act was transferred to the Crown Land Fund at that time.\nI 3.26 During the fiscal year ended 31 March 1980, $3.8 million, relating to the former\nHousing Fund assets transferred to the Crown Land Fund, was written off against\n 16        REPORT OF THE AUDITOR GENERAL\n1\nthe surplus of the latter Fund. Although Order in Council approval was obtained\nto write off a $1.5 million advance to a municipality, as recommended in\nparagraph 7.54 of my 1979 Report, no such approval was obtained for the\nremaining $2.3 million. This latter amount consists of development expenditures incurred on projects which were abandoned, feasibility study expenses,\nand expenditures which subsequently proved to be only partially recoverable.\nSuch types of expenditures are frequently incurred in the normal course of events\nby organizations engaged in land development activities.\n3.27 While Order in Council approval is required under the Revenue Act to write-off\ndebts in excess of $200 due and payable to the Crown, this write-off of $2.3\nmillion relating to expenditures subsequently found to be not recoverable does\nnot appear to be specifically encompassed by its provisions or those of the Lands,\nParks and Housing Act. In my opinion, however, it would be both prudent and\ndesirable in such circumstances to obtain Order in Council approval to write off\nsuch amounts.\n SECTION 4, COMMENTS ON INTERNAL CONTROL        17\nComments on Internal Control\nGeneral Comments\nINTRODUCTION\n4.1 Internal control systems comprise all the methods and procedures used to\nsafeguard assets, control expenditures, ensure the efficient collection and control of revenue, and produce accurate and reliable accounting information.\n4.2 The Government employs a centralized accounting system operated by the\nOffice of the Comptroller General. Expenditure and revenue transactions originating in the ministries are processed in this central system.\n4.3 Although the main accounting processes of the Government are centralized, the\nsystems of internal control employed by the various ministries vary considerably\nboth as to the form of the methods and procedures used and the quality of their\napplication. These control systems do not meet the generally recognized standards that are required for good financial management.\n4.4 In my 1979 Report I expressed my concern that basic expenditure controls had\nnot been universally adopted throughout the Government. I also recommended\nthat standards be set for an acceptable level of performance in the collection,\ncustody and recording of Provincial revenue.\nCONTROLS OVER REVENUES AND EXPENDITURES\nI   4.5  In my 1979 Report I referred to control deficiencies in the following revenue\nactivities:\n\u2022 billing, collecting and recording revenue;\n\u2022 adjusting revenue accounts;\n\u2022 receiving and recording cash; and\n\u2022 reporting the results of revenue activities for financial management and\ncontrol purposes.\n4.6 In 1980 we again reviewed and evaluated controls and concluded that, with the\nexception of adjusting revenue accounts, the previously noted deficiencies had\nnot been corrected to any appreciable extent.\n4.7 As in 1978 and 1979 we reviewed and evaluated internal controls over general\ndisbursements and payrolls as part of our 1980 audit of the accounts of the\nProvince and found that expenditure controls had not improved significantly\nsince the previous audit.\n REPORT OF THE AUDITOR GENERAL\n1\n4.8 My concerns regarding expenditure controls, as indicated in my 1979 Report,\ninclude:\n\u2022 financial management and control policies, directives, guidelines and\nprocedures are not clearly defined nor effectively communicated;\n\u2022 delegation of authority for disbursements is not clearly defined,\ndocumented and controlled;\n\u2022 duties of individuals are not always segregated adequately for control\npurposes;\n\u2022 batch processing and other key controls are seldom used; and\n\u2022 financial reports from the central accounting system are not used as effectively as they might be for internal control purposes.\n4.9 We are advised that the Office of the Comptroller General has undertaken steps\nto:\n\u2022 prepare a comprehensive Financial Administration Manual that will con-j\ntain expenditure policies, directives, guidelines and procedures with re-j\nspect to both revenues and expenditures;\n\u2022 develop a policy and issue guidelines on financial signing authorities; and\n\u2022 process vouchers in batches for control purposes.\nWe are also aware of the continuing expenditures system design project, and the ;\nnew payroll system which is expected to be implemented throughout the Gov- j\nernment in the 1982 fiscal year.\nCONCLUSION\n4.10 I am pleased to note that efforts continue to be made to bring revenue and]\nexpenditure controls to an acceptable level, and I strongly urge completion of\nthe current projects as soon as possible. The following examples of continuinjS\nproblems emphasize the urgency of completing this work.\nSpecific Control Deficiencies\nUNRECORDED CASH AND BANK ACCOUNTS\n4.11 The Revenue Act requires that all public money from whatever source be paid to J\nthe credit of the Minister of Finance through banks designated by the Minister. I\nWhile reviewing the activities of various ministries we identified bank accounts, I\ncontaining public monies, which had not been authorized by the Minister of j\nFinance. In addition we found instances where cash receipts were retained in j\nlocal offices rather than being deposited. Senior financial officers of the minis-J\ntries were also unaware of the existence of these accounts and funds.\n4.12 Monies held in these unauthorized bank accounts, as well.as revenues and!\nexpenditures processed through them, are not included in the financial state-1\nments of the Government. Similarly, unrecorded cash transactions result in\nincomplete financial records.\n 4.13 Inappropriate practices followed in the administration of these accounts and\nfunds include:\n\u2022 deposit of receipts to the credit of an individual \"in trust\";\n\u2022 deposit of monies to accounts for extended periods with no transfer to the\nMinister of Finance;\n\u2022 inadequate control of revenue collections;\n\u2022 direct and unauthorized purchase of materials and supplies from monies\ndeposited; and\n\u2022 use of cash receipts not deposited to make purchases.\n4.14 \/ recommend that all ministries take steps to ensure that everyone receiving\nmonies on behalf of the Province is made aware of the requirements that all such\nmonies are to be deposited intact to the credit of the Minister of Finance in an\naccount authorized by the Minister of Finance as required by statute.\nMINISTRY OF FINANCE - SECURITIES SECTION ACCOUNTING\n4.15 The Securities Section of the Ministry of Finance is directly responsible for the\nlargest financial operation of the Government, involving $6 billion in assets\nunder its control and custody in 1980 and a volume of several times this amount\nhandled in the course of the year in the rollover of cash and investments. Its\nactivities as custodian of securities, investment manager, trustee and agent for\nthe Province and for various pension, trust and sinking funds require the highest\nquality of accounting and reporting practices, both to protect such assets and to\nproperly record the transactions.\n4.16 Despite improvements noted following the hiring of qualified accounting staff,\nmany systems deficiencies previously reported upon continued during the 1980\nfiscal year. As in the two preceding years the extent of audit work required\nexceeded that which would be considered normal and reasonable.\n4.17 Although I am aware of the current systems development project to improve the\nsecurities system and coordinate it with the central accounting system, further\nsystems improvements are required. The successful completion of this project is\nmost important, and I again recommend that it be completed as soon as possible\nto achieve acceptable standards of accounting and reporting.\nministry of energy,mines and petroleum resources- revenue\n[controls\n4.18 The Petroleum Titles Division administers the disposition of petroleum rights\nwhich are sold through a tendering process. Revenues from this source\namounted to approximately $206 million for the 1980 fiscal year.\n4.19 At the time of our audit there were no formally documented and. approved\nprocedures for handling bids. The methods used did not, in our view, meet the\n 20        REPORT OF THE AUDITOR GENERAL\nstandards of control we would normal ly expect. The process of deal ing with bids\nwas unsatisfactory, in that there was no record of the time of receipt of bids and\nbids submitted were not numerically controlled. Further, the responsibility of\nwhether to accept or reject bids was placed on one individual who was called\nupon to exercise considerable discretion in the decision process, particularly\nwhere bids varied significantly from the value estimated by the Ministry.\n4.20 Subsequent to our audit the Ministry improved its procedures by recording the\ntime of receipt and establishing numerical control over submitted bids. However, I am of the opinion that further improvements are necessary. The Ministry\nshould formalize and document procedures for receiving, reviewing and accepting bids. In particular these procedures should require that additional senior staff;\nparticipate in the process and share responsibility for the acceptance or rejection\nof bids and provide for documented evidence of this participation.\nMINISTRY OF HEALTH - PATIENTS MAINTENANCE ACCOUNTS RECEIVABLE\n4.21 Patients at Provincial government hospitals are billed a nominal per diem charge\nfor their care, treatment and maintenance. Rates are established by the Ministry\nof Health, and are the same as those charged at general hospitals throughout the\nprovince. In 1980 we audited the accounts of four Provincial government!\nhospitals and are concerned with the status of patients' maintenance accounts j\nreceivable shown by the records at two of the hospitals.\n4.22 The balance of maintenance accounts receivable at Riverview Hospital ex- j\nceeded $11 million at 31 March 1980, an increase of $1.5 million over that of\nthe preceding year. Only minimal efforts are made to collect these hospital\ncharges. After the original and two follow-up billings, hospital management\ndoes not actively and regularly pursue collection of these accounts. Steps arej\nseldom taken to gather satisfactory information to determine whether accounts j\nare worthy of additional collection efforts or are considered to be bad debts.]\nMinistry of Health officials have indicated that a large portion of the mainte-l\nnance accounts receivable may be owed by indigent patients.\n4.23 Assessment Committees are appointed at Provincial government hospitals byj\nOrder in Council, with authority to recommend adjustment of these mainte-1\nnance charges where patients do not have the means to pay for their care. The]\nRiverview Hospital Assessment Committee limits its review of applications fori\nadjustment of maintenance charges to those which it receives within 30 days of a j\npatient's discharge. This policy eliminates the majority of cases that wouldl\notherwise be reviewed. We feel that the rights of patients to seek special!\nconsideration when unable to pay the regular maintenance rate would be betterl\nserved were the Assessment Committee to review all applications for rate adjust-j\nment.\n4.24 The Assessment Committee's decision to limit its review of applications and thel\nII\n SECTION 4, COMMENTS ON INTERNAL CONTROL       21\nfailure to write off uncollectible accounts result in records which do not accurately reflect the amounts collectible. These weak collection practices lead to a\nloss of government revenues.\n4.25 Similar accounts receivable problems exist at Pearson Hospital, although the\ntotal amount involved is much smaller.\n4.26 Ideally such accounts receivable should be recorded in the financial statements\nof the Province along with an appropriate allowance for loss. At the very least a\ncoordinated policy for the adjustment, collection and write-off of hospital\ncharges receivable is needed to ensure that hospitals' accounts receivable\nrecords accurately reflect the amounts considered collectible and that all revenue due to the Crown is collected on a timely basis.\n 22        REPORT OF THE AUDITOR GENERAL\nPublic Bodies\n5.1 Although the audit of the accounts of the Province is my principal responsibility,\nI am also eligible to be appointed the auditor of any Crown corporation, Crown\nagency or other public body as defined in the Auditor General Act. At 31 March\n1980, in my capacity as Auditor General, I was the appointed auditor of 27\npublic bodies which are listed in Appendix II to this Report. The financial\nstatements of 11 of these organizations appear in Section F of the Public\nAccounts for the fiscal year ended 31 March 1980. Since that date 1 have also\nbeen appointed auditor of British Columbia Place Ltd., Knowledge Network of i\nthe West Communications Authority, The Committee for Transpo 86, and\nTranspo 86 Corporation.\n5.2 Not all financial statements of public bodies audited by the Auditor General are\npublished in the Public Accounts. Because many of these bodies have significant\npublic impact or funding, all relevant financial information should be readily\navailable to the public. Accordingly, I recommend that henceforth all such!\nfinancial statements be included in the Public Accounts together with my reports!\nthereon.\n5.3 My auditing of public bodies, as distinct from the accounts of the Province,!\nconstitutes a substantial undertaking. Approximately 40 per cent of the audit!\neffort and cost of my Office is committed to this aspect of its work, whichl\ninvolves organizations with total assets of $4.6 billion and annual expenditures!\nof $1.6 billion.\n5.4 Upon completion of each audit I issue a report which contains an expression of\nmy opinion on the financial statements. In most cases my opinion on these!\nfinancial statements is issued without reservation. However, under certain cir-l\ncumstances it may be necessary to issue a qualified opinion.\n5.5 For the period covered by this Report, my audit opinions on the financial!\nstatements of two public bodies were qualified. My report on the financial!\nstatements of the Workers' Compensation Board of British Columbia, which is\nincluded on page F-242 of the 1980 Public Accounts contained a qualification!\nwhich is worded as follows:\n\"In my opinion, subject to recovery of the class balances of\n$260,010,000, these financial statements present fairly the financial\nposition of the Board as at 31 December 1979 . . .\"\nMy report on the financial statements of Pacific Vocational Institute for the yearl\nended 31 March 1980, which are not published in the Public Accounts, cotm\ntained a qualification in respect of the collectibility of approximately $97,000j\nrecorded as due to the Institute.\n SECTION 5, PUBLIC BODIES        23\n5.6 Although the principal objective of the audits of public bodies is the expression\nof an opinion on the financial statements, we plan and conduct our work to\nprovide the management of each entity with comments we consider to be useful\nand constructive regarding matters which come to our attention in the course of\nthe audit. We communicate these observations and our related recommendations directly to the organizations concerned in the form of management letters.\n5.7 Only occasionally are these matters of sufficient concern to warrant inclusion in\nthis Report. However, one such item was identified during the period covered by\nthis Report, and I set out the salient points hereunder.\n5.8 The Education Institution Capital Finance Act states that the purpose of the\nBritish Columbia Educational Institutions Capital Financing Authority is to assist\neducational institutions to finance capital expenditures by \". . . purchasing\ndebentures issued by them with money raised by the issue and sale of debentures\nof the authority.\"\n5.9 At 31 March 1980 loans dating from June 1978 and totalling $59,831,000 had\nbeen made to eight educational institutions by the Authority. Debentures have\nbeen received from educational institutions only to the extent of $3,000,000. To\ndate the Authority has not obtained debentures for the remaining $56,831,000.\nIt does, however, hold Letters of Undertaking from the borrowers to issue\ndebentures in the amounts, rates and maturities stipulated by the Authority.\n5.10 I have brought this matter to the attention of the Authority on several occasions\nand again strongly urge that the required debentures be obtained without further\ndelay in order to comply with the requirements of the Act.\n5.11 The accounts of some public bodies are reported on by other auditors. Such\npublic bodies whose financial statements are included in the Public Accounts\nare listed in Appendix III to this Report.\n T\n24        REPORT OF THE AUDITOR GENERAL\nGeneral Matters\nOrganization and Activities of the Audit Office\nINTRODUCTION\n6.1 The responsibilities assigned to the Auditor General by the Legislative Assembly\nin regard to the audit of the accounts of the Government are extensive. They :\nrequire the examination and evaluation of accounting records and transactions,\ncontrol systems and procedures, legislative compliance, and other matters\nthroughout all ministries and central agencies of the Government. The Auditor\nGeneral has similar responsibilities with respect to the audits of 31 public\nbodies.\nSTAFF RESOURCES AND DEVELOPMENT\n6.2 In order to carry out these responsibilities, the Office of the Auditor General was\nestablished in Victoria and has grown, over the period of Vh years, to a staff of\n70 including 35 professionally qualified accountants and 28 employees who are i\nenrolled in courses of study leading to recognized accounting designations.\nThe professional staff have brought to the Office a broad range of experience in\nauditing, accounting and related disciplines. Through participation in conferences, training seminars, lectures and discussion periods they further develop\ntheir skills to meet new challenges in the legislative auditing field.\nORGANIZATION\n6.3 The first major realignment of responsibilities within the Office took place during j\nthe period covered by this Report. Since the inception of the Office in 1977, the j\naudit of the Provincial accounts had been performed by staff organized into two\naudit divisions. A third division was responsible for all public body audits j\nassigned to the Office. This form of organization was especially appropriate\nwhen the Office was in its formative stage, in order to best utilize the training and I\nexperience of the new staff.\n6.4 By the fall of 1979 the staff resources of the Office had reached a strength and\ncapability which permitted a realignment of responsibilities to achieve a better I\ncorrelation of the work of the audit staff, recognizing the interrelationships!\nbetween public bodies and the ministries responsible for their activities. Accordingly, responsibility for the audit work in individual Ministries and the audits of J\nthe public bodies related to them was divided among each of three audit!\ndivisions. These divisions are under the direction of the following senior mem-1\nbers of my staff: Frank Barr, C.A., Gordon W. Dawson, C.A., and Raymond L. I\n Hunter, C.A. Jean-Pierre Boisclair, C.A., C.M.C. also served as an audit director, responsible for the introduction of comprehensive auditing methodology to\nthe Office. These audit directors, together with the Deputy Auditor General,\nRobert J. Hayward, C.A. and myself, constitute the Executive Committee of the\nOffice.\nNEW DEVELOPMENTS\n6.5 Significant changes are occurring, both in Canada and internationally, in the\nrole of the legislative auditor and in the means by which he carries out his\nmandate. I am closely following these developments in my effort to ensure that\nthe activities of the Office are conducted in the manner which best serves the\nLegislative Assembly and others who rely on our work.\n6.6 We are continually reviewing our overall audit approach, and employing new\ntechniques and procedures where appropriate. Innovations are being implemented in such areas as statistical methods, internal control system studies\nand evaluations, and computer data retrieval and analysis. Methods are also\nbeing developed to broaden the scope of examinations of complex computer-\nbased systems. These improved, more efficient auditing procedures should\nenable the Office to further emphasize the constructive aspects of modern\nauditing.\n6.7 Development efforts are continuing in the field of comprehensive auditing. My\n1979 Report described the approach my Office had begun to take in conducting\naudits which embody all key provisions of my mandate and indicated my\nintention to undertake comprehensive audit pilot projects. The results of this\nwork are detailed in Part 2 of this Report. I consider the comprehensive auditing\napproach to have considerable potential to help my Office achieve its objectives\nand meet its responsibilities.\n[OTHER ACTIVITIES\n\u25a0: 6.8 Another responsibility of my Office, although not specifically spelled .wt in\nlegislation, is the involvement of my staff in many related activities within the\nGovernment, the accounting profession, and the private sector in general. This\ninvolvement is important in that it maintains an awareness of current issues and\nconcerns in these areas, enables the Office to tailor its role to more fully meet\nchanging needs, and contributes to the maintenance of professional standards.\nOur participation takes many forms, including services as lecturers and panelists\nin numerous professional, university and Government training programs, contributions to various technical research projects, and other activities relating to\nprofessional bodies and similar organizations.\n Public Accounts Committee\n6.9 The Public Accounts Committee of the Legislative Assembly can play an important role in the process of accountability for public funds by focussing attention\non areas of concern to the Legislative Assembly and to the public.\n6.10 The annual report of the Auditor General is, by statute, referred to the Committee\nfor its consideration. I view this as a vital part of the audit process wherein\nmatters which are of particular importance can be discussed in an open forum.\n6.11 My Annual Report for the fiscal year ended 31 March 1979 was tabled in the\nLegislative Assembly on 18 March 1980. It was referred to the Public Accounts\nCommittee and formed the basis for a considerable portion of the Committee's\ndeliberations during the Legislative session. The Committee held 17 meetings, at\nnine of which it dealt with matters contained in my Report. I attended 15\nmeetings including all those concerned with my Report.\n6.12 A meeting of representatives of public accounts committees was held in Winnipeg in August, 1980. Delegates from all the provinces and the federal government attended, including two members of the British Columbia Committee.\nDuring a joint meeting of these representatives and the members of the Canadian\nConference of Legislative Auditors there was a free exchange of views on the\nroles and relationships of public accounts committees and legislative auditors. I\nconsider meetings such as this to be a valuable means of increasing the understanding of roles each has to play.\n6.13 The Public Accounts Committee reports periodically to the Legislative Assembly\non the work of the Committee. One such report was issued during the 1980 \\\nsession. While it referred to the Committee's study of the Auditor General's]\nReport, it did not contain any detailed comments or recommendations with\nrespect to the Report.\nCanadian Conference of Legislative Auditors\n6.14 Representatives of all legislative audit offices, both provincial and federal,\nattended the eighth annual meeting of the Canadian Conference of Legislative j\nAuditors held in Winnipeg in August of 1980. The Conference comprises the j\nlegislative auditors of all the provinces and Canada and serves as a useful forum\nfor the sharing of ideas and information. I attended the meeting with two senior\nmembers of my staff.\n6.15 In recognition of the contribution he has made to the progress of legislative\nauditing, the Conference unanimously conferred a life membership on James J. j\nMacdonell, F.C.A., former Auditor General of Canada. I am pleased that Mr!\nMacdonell will continue his interest and involvement in the challenges faced by!\nJ.\n the legislative auditing community by serving as the first Chairman of the Board\nof Governors of the Canadian Comprehensive Auditing Foundation.\nCanadian Comprehensive Auditing Foundation\n6.16 A significant development affecting legislative auditing occurred in early 1980\nwith the founding of the Canadian Comprehensive Auditing Foundation. Much\nof the initial impetus towards establishment of this organization came from\nCanada's legislative auditors who saw it as a method of joining forces with other\ninterested parties to develop ways and means of sharing knowledge and experience in the new field of comprehensive auditing. As a nonprofit cooperative\nresearch and training oriented organization, it has drawn its membership from a\nbroad cross-section of both the public and private sectors.\n6.17 I have been closely associated with the Foundation since its inception, and\ncurrently serve on the Board of Governors. Although the Foundation is still in its\nformative period, my Office has already found its facilities and programs to be of\nsubstantial benefit in the training of staff and the development of new auditing\ntechniques.\nAdvisory Council\n6.18 In addressing the work of my Office, I am fortunate to have had the advice of the\nfollowing senior members of the accounting profession who have served on the\nAuditor General's Advisory Council for the report years noted:\nRoss M. Skinner, F.C.A. 1978\nMichael J. Ashby, F.C.A. 1978, 1979, 1980\nArthur Beedle, F.C.A. 1978,1979, 1980\nHarold G. Craven, F.C.A. 1978, 1979, 1980\nDennis F. Culver, F.C.A. 1978, 1979, 1980\nKenneth M. Dye, F.C.A. 1979\nRonald W. Park, F.C.A. 1980\nI note with particular pleasure that Mr. Dye has been selected for appointment as\nthe Auditor General of Canada, and offer him my sincere congratulations and\ngood wishes.\n 28\nREPORT OF THE AUDITOR GENERAL\nStatus of Findings and Recommendations\nContained in Previous Annual Reports of the\nAuditor General\nSection,\nReport   Paragraph\nSubject\nStatus as at Date of\nPreparation of the 1980\nAnnual Report\n1979\n1978\n1979\n1978\n1979\n2.3\n5.2\n3.3\n6.14\n5.6\n1978     8B.9\nGENERAL\nRecommendation that the financial\nstatements be finalized by 30 September of each year and transmitted to the\nAuditor General forthwith.\nLEGISLATION\nRecommendation that existing obsolete financial statutes be replaced by\nimproved legislation to meet current\nand anticipated requirements.\nSome improvement noted.\nFinancial statements for the]\n1980 fiscal year received on\n17 November 1980.\nA proposed new Financial!\nAdministration Act was\ndrafted and circulated. A Task\nForce was established to review submissions and make\nrecommendations with a\nview to introducing legislation in 1981. (see also 1980\nReport, Section 1)\nCOMMENTS ON THE FINANCIAL STATEMENTS\nDeficiencies and ambiguities in content and application of stated policies\nwarrant a thorough study of the Government's accounting policies and\nfinancial statement presentation. Afull\nand clear body of stated accounting\npolicies should be formulated,\napproved by Treasury Board, and applied consistently in the government\naccounting process and in its financial\nstatement presentation.\nNSF cheques included in accounts receivable and considered uncollectible\nshould be written off.\nThe 1980 Notes to Financial]\nStatements refer to a compre-\nhensive examination of]\naccounting policies and prac- j\ntices of the Government. The j\nnotes further state that it is ]\nanticipated that the financial\nstatements for the 1981 fiscal\nyear will reflect the recommended changes in reporting |\nprinciples and practices.\nSatisfactorily resolved in]\n1980.\n1978     8B.17     Treatment of holdbacks is not consis-      No change.\nJ\n \u25a0\nSECTION 7, STATUS OF FINDINGS AND RECOMMENDATIONS       29\nReport\nSection\nParagra\nph                    Subject\nStatus as at Date of\nPreparation of the 1980\nAnnual Report\ntent with stated policy on expenditures.\n1978\n8B.17\nDeferral of revenue from sale or lease\nof Crown lands not consistent with\nstated policy on revenue.\nNo change.\n1978\n1979\n8B.18\n5.22\nSuspense accounts not reconciled or\ncleared.\nRegular reconciliations and\nclearings are now made for\nthose accounts for which the\nComptroller General has\ndirect responsibility. No significant improvement in those\naccounts for which the ministries have primary responsibility for maintenance.\n;   1978\n8B.20\nSecurities held as guarantee and performance deposits should be under supervision and record keeping of Securities Section.\nGenerally being done for\nnegotiable securities. However, most ministries receiving\ndeposits still do not maintain\nadequate control records.\n1978\n1979\n1979\n8C.9       Excessive delay in billing timber royal-\n7.27     ties and stumpage fees.\nGross amounts of royalties and stumpage fees should be stated separately\nfrom the offsetting credits for road-\nbuilding, reforestation, etc.\n1978 8C.14 Steps should be taken to either enforce\nthe repayment terms of the loan agreement for the $2.5 million advance or\nobtain authorization for deferral.\nConsiderable improvement\nhas been noted. Unbilled\nroyalties and fees had been reduced from $118 million at\n31 March 1979 to $23 million\nat 31 March 1980.\nNo change in accounting pre-\nsentation. However, the\namount of allowances made\nfor roadbuilding, reforestation, etc. was disclosed in a\nfootnote to the schedule of\nGeneral Fund revenue (PA\nC2).\nNo change.\n 30        REPORT OF THE AUDITOR GENERAL\nSection,\nReport   Paragraph\nI\nSubject\nStatus as at Date of\nPreparation of the 1980\nAnnual Report\n1978     8C.1f\n1978     8C.20\n1978\n8C.22\n1979\n5.18\n1978\n8C.25\n1979\n5.21\nRecovery of $5.5 million loan is questionable and appropriate provision\nshould be made.\nA review should be made of sundry\nloans and advances for deletion from\nthe accounts or offset by allowance for\nloss.\nRecommendation that the investment\nof $185,572,900 in the British\nColumbia Railway Company be written down to $1.\nConsideration should be given to recognizing potential losses arising from\ninvestments in, advances to and loan\nguarantees with respect to three companies included in \"Investments,\nOther.\"\n1978 8C.29 Stated accounting policy regarding\nfixed assets should be clarified.\n1978 8D.18    Recommendation that a provision be\nmade for doubtful mortgages in the\naccounts of the Provincial Home Acquisition Fund.\n1979 5.11      Old accounts receivable totalling\n$51,000 should be written off.\n1979 5.14 Recommendation that the University\nEndowment Lands balance in Special\nPurpose Funds be used to repay advance account in the General Fund as\nrequired by the Act.\n1979 5.15 Recoverable advance of $50,000 not\nrecorded in the financial statements.\nProvision made in 1980 for\nfull amount.\nAppropriate writeroffs made.\nCarrying value of the investment was reduced to $1 in the\naccounts of the 1980 fiscal\nyear.\nProvision was made in 1980\nfor the full amount of the investment in and advances to\ntwo companies. Due to\nchanged conditions, no provision for potential loss on investment of $100,000 and\nloan guarantees of $1.4 million in third company was\nconsidered necessary at this\ntime.\nNo change.\n$1.7 million written off as uncollectible loans in 1980.\nWritten off.\nNo change, accounting treat-*\nment is being reviewed by\nministry responsible.\nAdvance recorded in 1980.\n SECTION 7, STATUS OF FINDINGS ANC\nRECOMMENDATIONS       31\nStatus as at Date of\nSection\n,\nPreparation of the 1980\nReport\nParagra\nph                   Subject\nAnnual Report\n1979\n5.19\nAdvance of $2,850,538 to T.S. Hold\nProvision made for full\nings Ltd. should be written down to\namount in 1980.\nreflect anticipated loss to the Province.\n1979\n5.20\nProvision should be made for the\nProvision made for full\npotential loss of the investment in and\namount in 1980.\nadvances to Ocean Falls Corporation.\nGUARANTEED DEBT\n1978\n9.6\nRecommendation that the Province\nNotes to the 1980 financial\n1979\n5.25\nrecognize the net debt of the British\nstatements refer to the stated\nColumbia Railway Company as direct\nintention of the Government\ndebt of the Province and record it as\nto provide for the debt service\nsuch unless other financial arrange\ncharges of the Railway on an\nments made to service this debt.\nongoing basis.\n1978\n9.8\nInconsistent treatment of accrued interest in calculating net guaranteed\ndebt.\nNo change.\n1979\n5.26\nThe early redemption feature of the\nDisclosure made in the notes\nguaranteed debt owing to the Canada\nto the financial statements for\nPension Plan Investment Fund should\n1980.\nbe disclosed in the financial state\nments.\n1979\n5.27\nComment that the Schedule of\nGuaranteed Debt would provide better disclosure by showing:\n\u2022   comparative figures of the prior\nShown in 1980.\nyear;\n\u2022   maturity dates, interest rates and\nA footnote to the Schedule\nredemption features;\n(PA B17) refers the reader to\nthe financial statements of the\nCrown agencies in Section F\nof the Public Accounts, but\nthis falls short of disclosure in\nthe accounts of the Province.\n\u2022   investments held as assets of the\nShown as deduction in 1980.\nGeneral and Special Purpose\nFunds and guaranteed by the\nProvince as deduction from\n 32\nREPORT OF THE AUDITOR GENERAL\n)\nStatus as at Date of\nSection\nPreparation of the 1980\nReport\nParagra\nDh                   Subject\nAnnual Report\ntotal outstanding guaranteed\ndebt; and\n\u2022   the fair market value of invest\nNo change.\nments held by the sinking funds.\nINTERNAL CONTROL SYSTEMS\n1978\n7.4\nSystem of internal control over the dis\nNo significant changes as yet.  1\n1979\n6.19\nbursement of Provincial funds fails to\nmeet generally recognized standards.\nModifications to disburse- 1\nment system are planned, (see 1\nalso 1980 Report, Section 4)   I\n1978\n7.20\nDeficiencies in payroll system.\nSatisfactory procedures now 1\n1979\n6.19\nfollowed in Central  Pay  1\nOffice. Little change to date in 1\nministries. A completely re- \u25a0\nvised payroll system has been\ndeveloped for implementa- 1\ntion during the 1982 fiscal\nyear, (see also 1980 Report, 1\nSection 4)\n1979\n6.6\nDeficiencies in the collection and re\nNew revenue policies and 1\nand\ncording of revenue are serious enough\nprocedures have been drafted I\n6.22\nto warrant immediate study and corrective action.\nby the Comptroller General to 1\nform part of a comprehensive 1\nFinancial Administration\nManual, (see also 1980 Re- 1\nport, Section 4)\nMinistries\nMINISTRYOF AGRICULTURE\n1979\n7.5\nField audit capacity should be established to continually monitor payments under the Agricultural Credit\nand   Farm   Income  Assurance\nPrograms.\nAn initial step has been taken \u25a0\nwith the hiring of an internal \u25a0\nauditor in September 1980.\nMINISTRYOFTHE ATTORNEY GENERAL\n1978\n8F.4\nRecommendation that steps be taken\nNon-cash assets are now re-B\n1979\n7.13\nto reconcile the accounts of the Public\nTrustee and Comptroller General for\nconciled monthly.\n SECTION 7, STATUS OF FINDINGS AND RECOMMENDATIONS        33\nReport\nSection\nParagra\nph                   Subject\nStatus as at Date of\nPreparation of the 1980\nAnnual Report\nnon-cash assets held in trust.\n1978\n1979\n8F.5\n7.14\nInvestigative teams, rather than individual investigators, should be used by\nthe Public Trustee to inventory and receipt trust assets.\nNo change.\n1979\n7.15\nProcedures should be established to\nensure the accuracy of the Publ ic Trustee's records of securities included in\ntrust assets.\nProcedures now established.\n1979\n7.16\nUniform guidelines and improved procedures for fee collection by the Public\nTrustee should be developed.\nNo change. Revised procedures planned for implementation in 1982 upon completion of current project to improve accounting and management information systems.\n1979\n7.10\nThe Ministry should formally document and follow procedures for making purchase commitments, and\napproving and checking payments.\nNo significant change, and\nmy concern still exists.\nMINISTRY OF CONSUMER AND CORPORATE AFFAIRS\n1979\n7.19\nConcern that the division of responsibilities for internal audit coverage of\nthe Liquor Distribution Branch between the Comptroller General's and\nthe Branch's internal audit groups,\nmay not be appropriate to meet the\nneeds of the Branch.\nMINISTRY OF ENVIRONMENT\nMy concern continues. To 31\nJanuary 1981 there had been\nno information provided to\nmanagement of the Liquor\nDistribution Branch on the\nwork performed  by the\nComptroller General's internal audit staff.\n1979\n5.12\nAccounts receivable for water licence\nfees were not recorded in the financial\nstatements.\nThese accounts receivable are\nrecorded as assets at 31\nMarch 1980.\n1978\n11.16\nand\n11.18     Section\nMINISTRY OF FINANCE\nWeaknesses in internal controls and\naccounting records of the Securities\nSystem changes are still being\nimplemented, (see also 1980\nReport, Section 4)\n ^\n34\nREPORT OF THE AUDITOR GENERAL\nSection,\nReport  Paragraph\nSubject\nStatus as at Date of\nPreparation of the 1980\nAnnual Report\n1979 7.24 Recommendation that major improvements in fund accounting and reporting practices of both the central\naccounting and Securities Section systems be implemented without delay.\n1979 7.22 Recommendations that guidelines and\nprocedures for all government banking\ntransactions be firmly established and\nthat controls be strengthened by Treasury Section in the exercise of its overal I\nresponsibility for Government bank\naccounts.\nMINISTRYOF HEALTH\n1979       7.30    Expenditure control weaknesses noted\nand      concerning inadequate segregation of\n7.31     responsibilities, delegations of authority, control over documents in process, and verification of expenditures\ncharged to the Ministry.\n1979       7.34    Revenue controls generally were into        adequate to ensure that all revenues\n7.37    due were collected and properly recorded.\n1979 7.38 The system for administering and controlling patients' trust accounts should\nbe upgraded, with particular attention\nbeing given to adequate segregation of\nresponsibilities.\n1979 7.39 Need for regular reconcilation of subsidiary records to the central control\naccounts, and analysis and review for\ncorrectness. Examples:\n\u2022 employee advances\n\u2022 hospital construction funds\nMajor systems changes in\nprogress.\nRecommendations have been\nfollowed. Procedures now\nimproved.\nImprovements were noted in\npurchasing and receiving procedures and in document\napprovals. Some improvement was noted in the expenditure verification process. Payroll weaknesses still\nexist.\nNo significant improvements\nwere noted.\nSegregation of responsibilities\nis less of a problem now, but\nreconciliation of patients'\ntrust accounts remains below\nacceptable standards.\nSignificant improvements\nwere noted.\nFederal funding of $142,000\nreceived in 1971 is still not\nII\n SECTION 7, STATUS OF FINDINGS AND RECOMMENDATIONS        35\nStatus as at Date of\nSection\nPreparation of the 1980\nReport\nParagraph                   Subject\nAnnual Report\ntransferred to revenue.\n1979\n7.40\nRecommendation with respect to the\nNo change.\nand\nconflict between legislation and\n7.41\naccounting practices concerning the\nHospital Insurance Fund.\n1979\n7.42\nRecommendation with respect to the\nNo change.\nto\nfinancial reporting requirements of the\n7.44\nEmergency Health Services Commission.\n1979\n7.45\nActions to overcome shortcomings in\nfinancial controls within the Emergency Health Services Commission:\n\u2022   more effort in the collection of\nSome improvement noted in\naccounts receivable should be\n1980.\npursued.\n\u2022   internal controls over payroll\nControls have been improved\nshould be brought to an accept\nand now meet acceptable\nable level.\nstandards.\n\u2022   controls should be strengthened\nControls have improved,\nover both advances and reim\nalthough reconciliation pro\nbursements to the operating\ncedures are still not adequate.\nunits of the Commission.\nMINISTRY OF HUMAN RESOURCES\n1979\n7.52\nGuidelines and procedures should be\nNo change, (see also 1980\nestablished to ensure that all ministries\nmaking expenditures shareable under\nthe Canada Assistance Plan provide\nthe Ministry of Human Resources with\ninformation necessary to make claims.\nReport, Section 8)\nMINISTRY OF LANDS, PARKS AND HOUSING\n1978\n8D.5\nDeficiencies in accounting records of\nMinistry continues to place\nand\nthe Housing Fund (now Crown Land\nemphasis in this area. Im\n1979\n8D.6\nFund), such as:\nprovements noted but some\n7.54\nweaknesses still exist.\nand\n\u2022   Collectibility of advance of $1.5\nWritten off in the 1980 fiscal\n7.55\nmillion\nyear.\n\u2022   No subsidiary records main-\nSubsidiary records on these\n 36\nREPORT OF THE AUDITOR GENERAL\nSection,\nReport   Paragraph\nSubject\nStatus as at Date of\nPreparation of the 1980\nAnnual Report\n1979\n7.57\n1979\n7.63\ntained for Rural and Remote\nHousing Program mortgages\ntotalling $1.7 million.\n\u2022 No provision for loss on a $2.7\nmillion mortgage to a corporation in receivership.\n\u2022 Property with a book value of\n$1.9 million was sold but still\nrecorded in the Real Estate\naccount.\n\u2022 The Fund's recorded cost of\n$15.4 million for federal\/provincial partnership projects does\nnot agree with the Canada Mortgage and Housing Corporation\ncost records.\nThe reporting requirements for housing cooperatives and nonprofit\nsocieties should be enforced to\nachieve efficient financial management of the housing grants program.\nMINISTRY OF THE PROVINCIAL SECRETARY\nprojects are now maintained\nby British Columbia Housing\nManagement Commission.\nSituation changed.\nNo allowance required.\nCorrected in the 1980 fiscal\nyear.\nResidual $4.0 million cost not\nsupported by adequate subsidiary records, (see also 1980\nReport, Section 3)\nReporting requirements still\nnot met. My concern continues.\n1978     8B.12\nand\n8B.13\n1978     8B.14\nand\n8B.15\n1978 8D.13\n1979 7.60\nA statement of accounts of the Queen's\nPrinter has not been certified by the\nComptroller General as required by\nthe Public Printing Act.\nNeed for improvements in inventory\naccounting systems of the Queen's\nPrinter.\nRevenue from the Lotteries Branch\nLicensing Section taken into revenue\nof the General Fund, while its costs\nwere charged to the Lottery Fund. Related revenues and expenditures\nshould be reported through the same\nfund.\nAccounting records and procedures of\nthe Lotteries Branch considered to be\nNo change.\nStatus to be determined at the\ntime of our next audit.\nAppropriate action taken.\nNew distribution procedures\nhave eliminated many of the\nJ\n SECTION 7, STATUS OF FINDINGS AND RECOMMENDATIONS       37\nStatus as at Date of\nSection, Preparation of the 1980\nReport   Paragraph Subject Annual Report\ninadequate for control purposes. problems noted. Improve\nments in the accounting records are still in progress.\n1979 7.25 Investment of $350,000 in 1975 from This investment is now re-\nFirst Citizens Fund shown as an ex- corded in the General Fund\npenditure rather than as an asset. under Loans and Other Ad\nvances, but it should have\nbeen set up as an asset of the\nSpecial Purpose Fund.\n }\n PART 2\nCOMPREHENSIVE AUDIT\n  Table of Contents\nPART 2:\n8. Comprehensive Audit\nIntroduction    43\nComprehensive Audit Project    43\nComprehensive Audit Report: Ministry of Human Resources -\nIncome Assistance Program   44\nIntroduction    44\nOverview of the Ministry   45\nScope and Extent of Audit   47\nThe Income Assistance Environment    50\nSummary of Audit Observations   54\nReporting Performance and Accountability Information    60\nFinancial Management and Control   65\nControls in the Income Assistance System  69\nIdentified Overpayments and Errors - Control and Collection  77\nCost-sharing  79\nElectronic Data Processing  82\nInternal Audit  86\nObservations Arising from Audit of the Public Accounts     89\nSummary of Recommendations and Ministry's Comments   91\n  SECTION 8, COMPREHENSIVE AUDIT       43\nComprehensive Audit\nIntroduction\n8.1 Part 2 of the 1979 Report of the Auditor General to the Legislative Assembly\ndescribed in detail the approach that this Office had begun to adopt in conducting audits under sections 7 and 8 of the Auditor General Act.\n8.2 The approach known as \"Comprehensive Auditing\" allows us to fulfill responsibilities related to several different areas by carrying out a single, integrated audit.\nThese areas of responsibility pertain to financial and accounting controls, economy and efficiency (and related management control systems), and the basis\nthat the Government uses to account for and disclose the results of its activities to\nthe Legislative Assembly. The comprehensive audit process also requires us to\ncarry out the more traditional work of the legislative auditor, and places special\nemphasis on the audit of computer-based systems. Finally, comprehensive\naudits examine financial, management and information systems with a view\ntoward providing assurance that no significant deficiencies exist in these systems\nthat could lead to uneconomical, inefficient or ineffective management of\nfinancial, human or physical resources.\n8.3 Comprehensive auditing embodies three important concepts as described below. First, it is a constructive process. Second, the audit is coordinated with\nother audit work, and third, audits are carried out on a cyclical basis.\nConstructive: In order that we may be constructive as well as informative,\nwe provide recommendations to help overcome observed deficiencies.\nThese recommendations are phrased in such a way as to allow management\nto exercise discretion in deciding how best to remedy observed deficiencies.\nCoordinated: To avoid unnecessary duplication of audit work and ensure\nthat our audit will be efficient, we evaluate the work done by internal\nauditors and others to determine how their work might affect the nature and\nextent of our audit.\nCyclical: One of the fundamental principles of comprehensive auditing is\nthat audits should be conducted over a period of time and reports issued at\nintervals which suit particular programs and ministries. Thus it may be\nappropriate to report periodically or cyclically on major elements of completed audit work within a particular Ministry or program. In other circumstances it may be more appropriate to report all findings under our comprehensive audit mandate at one time.\nCOMPREHENSIVE AUDIT PROJECT\n8.4 In our 1979 Report, we indicated that we had begun a comprehensive audit\n project with the full cooperation and support of the Deputy Minister and Executive of the Ministry involved. The purpose of that project was to introduce the\ncomprehensive audit process to this Office and to help form the basis for further\ncomprehensive audit work. This year we completed an audit in the Ministry of\nHuman Resources. Our audit results are summarized, together with our recommendations and the Ministry's comments, in this Part of our Report. This project\nused the cyclical approach to comprehensive auditing and focussed mainly on\nthe Ministry's Income Assistance Program.\n8.5 We believe that this project has resulted in significant findings and recommendations for improvement within the Ministry. We also believe the project has!\ndemonstrated that comprehensive auditing can significantly enhance the work\nof the Office of the Auditor General.\n8.6 The cooperation, participation and interest of the Deputy Minister of Human\nResources and his Executive and staff at all levels in the Ministry have contri-1\nbuted greatly to our conducting and completing this audit.\n8.7 In carrying out this audit, our Office supplemented its own resources by engaging the services of Jean-Pierre Boisclair, C.A., C.M.C. who has worked for a\nnumber of years on executive interchange with the Office of the Auditor General\nof Canada conducting studies of financial management and carrying out comprehensive audits. Since his secondment to our Office, he has been appointed\nExecutive Director of the Canadian Comprehensive Auditing Foundation. In\naddition, the Office benefited from the support of a small advisory team com- j\nposed of senior personnel associated with the Office of the Auditor General of\nCanada who have been i n vol ved in the development of the comprehensive audit j\nprocess.\nComprehensive Audit Report\nMinistry of Human Resources - Income Assistance Program\nINTRODUCTION\n8.8 The audit of the Ministry of Human Resources represents this Office's first]\ndevelopment project aimed at implementing comprehensive auditing in the]\nProvince of British Columbia.\n8.9 Although portions of this comprehensive audit relate to the Ministry of Human ]\nResources in its entirety, our audit has focused primarily on the activities, ]\nsystems and procedures within the \"Basic GAIN\" Income Assistance Program. ]\nThis program provides Income Assistance to British Columbia residents between |\n19 and 64 years of age who are in need and who are unable to provide for ]\nthemselves through employment or other resources.\n SECTION 8, COMPREHENSIVE AUDIT       45\n8.10 The single comprehensive audit of the Ministry's Basic GAIN Income Assistance\nProgram included coverage under all the provisions of the Auditor General Act,\nincluding those relating to economy and efficiency. Our audit work was coordinated with that of Internal Audit and with other audit work done in the\nMinistry. This Section includes our recommendations for improving control\nsystems where significant deficiencies were apparent.\n8.11 We described the comprehensive audit process more fully in Part 2 of the 1979\nReport of the Auditor General to the Legislative Assembly. Paragraphs 8.1 to 8.7\nabove offer further comment on this type of audit.\n8.12 This Section of our Annual Report summarizes and reports the results of our\ncomprehensive audit. We have also provided the Ministry with detailed, supporting documentation that will help management both to review and respond to\nourfindings, observations and recommendations, and to initiate remedial action\nwhere appropriate.\n8.13 From the audit's early planning stages through to its completion, we have had the\nfull interest and cooperation of the Deputy Minister, his executive group and\npersonnel at all levels in the Ministry. Our work was greatly enhanced at all\nstages because these groups viewed the audit as a cooperative effort, both in\ndeveloping the comprehensive audit process and in sharing in its attendant\nbenefits.\n8.14 The Ministry has also contributed to our audit by working closely with us to\nlaunch a pilot study. This study, which is currently underway, will allow the\nMinistry to measure the reliability of control systems now used in providing\nIncome Assistance.\n8.15 Before we began our audit, the Executive and staff of the Ministry had already\nidentified many areas needing improvement. They also perceived that the audit\ncould be helpful in two ways. First, they saw the audit as an opportunity to\nidentify systematically, opportunities for improving the Income Assistance Program. Second, they viewed the audit as a positive exercise that would stimulate\nand help focus management's thinking when planning for change within the\nMinistry, especially in areas which it had previously identified as needing\nimprovement.\nOVERVIEW OF THE MINISTRY\nSIZE OF THE MINISTRY\n8.16 The Ministry of Human Resources is one of the largest ministries in the Government of the Province of British Columbia.\n\u2022   It employs approximately 5500 people. Of these, 60 percent are located in\n147 District and 20 Regional Offices; one-third are employed in institu-\n 71\n46        REPORT OF THE AUDITOR GENERAL\ntions for the mentally retarded and the remaining staff are located at\nHeadquarters.\n\u2022 It administers an annual budget of approximately $750 million (according\nto the 1981 Estimates). Of this, one-half consists of \"Income Assistance\"\npayments to individuals; one-quarter is disbursed as \"grants\" to non-profit\nand other organizations that provide income or social assistance to residents of British Columbia; the remaining quarter is used to cover salaries,\nprofessional services, administrative costs and in the operation of foster\nand group homes.\n\u2022 The Ministry also collects approximately $230 - $250 million annually\nfrom the Government of Canada under terms of the Canada Assistance\nPlan.\nRECENT CHANGES\n8.17 Although it has existed for many years, significant changes have recently occurred within the Ministry. These relate to its size, organization, range of programs\nand the ways in which it administers its programs. As part of the integration and\nconsolidation of social services within the Province, the Vancouver Resources\nBoard was amalgamated with the Ministry of Human Resources in 1977. This\namalgamation resulted in a near doubling of the Ministry's staff. During the mid\n1970's the Ministry also substantially changed the way in which the program and\nadministrative responsibilities were assigned to its senior executives.\nLEGISLATION\n8.18 Under the Ministry of Human Resources Act, the Ministry has jurisdiction over\n\". . . all matters relating to social and public welfare and social assistance.\" The\nGuaranteed Available Income For Need Act (GAIN Act) and its regulations,\nallow the Ministry to \". . . pay . . . money necessary for the administration of\nincome assistance and social services. . .\". Benefits provided under this Act are\n\". . . necessary for the purposes of relieving poverty, neglect or suffering . . .\"\nand can be paid in cash or\". . .in kind. . .\".The Ministry also administers eight\nother Acts, largely pertaining to family and children support services.\n8.19 To enable it to administer these Acts, the Ministry has organized its operations\ninto six broad program groupings. These are: Income Assistance, Family and\nChildren's Services, Community Projects, Health Care Services, Pharmacare\nand Residential Care for the Handicapped.\nTHE DECENTRALIZED DELIVERY SYSTEM\n8.20 Because of the size and the nature of its programs and activities, the Ministry has\ndecided to operate a decentralized delivery system. The full range of income and\nsocial assistance programs or activities is carried out through 147 District Offices\nlocated throughout the Province. These offices are under the direction of District\n SECTION 8, COMPREHENSIVE AUDIT       47\nExhibit 1: Partial Organization Chart as at December 31, 1980\n|    EXECUTIVE   I\nI    DIRECTOR   J\n~>   r~\n~\\   r\n\\      \\\nm\nf        ^    \/\u2014\n\\ s\n^\nDIRECTOR\nDIRECT\n3R\n'Health Care\n'Lower Mainland\nSupport Services\nManagement\nInformation\nFederal\/\nProvincial\nAgreements\n'Pharmacare\nChildren's\nServices\nTranquille\nRegion 3, 4,\n9\nEvaluation\nUnit\n^ r N\nAssistance\nFinancial and\nAccounting\nAudit Team\nResearch\nOffice Supply\nand Services\n- programs, or partial pro.\nSupervisors, who report to 20 Regional Managers.\n8.21 Each Regional Manager is accountable to an Executive Director for the delivery\nof social and Income Assistance services within his or her region. Executive\nDirectors have responsibilities both for specific program management (e.g.,\nIncome Assistance, Family and Children's Services) and for Regional Operations\nwhich either delivers or administer all or most programs at the local level. The\nExecutive Directors' program responsibilities are rotated every two years and\nregional responsibilities in alternate years. A summary chart (Exhibit 1) depicts\nthe Ministry's organization.\n8.22 General administrative and support services and guidance are provided to\nProgram Managers and Regional and District Offices by groups located at the\nMinistry's Headquarters. These include Finance, Administration, Personnel,\nInternal Audit and Computer Services.\nSCOPE AND EXTENT OF AUDIT\n^COPE\n8.23 Control Systems. Our audit focused on the Income Assistance Program. We\nexamined the financial, management and operational controls that the Ministry\nused to ensure the reliable and efficient delivery of Income Assistance. Our\nreview covered the major elements of the Income Assistance delivery system.\n 48        REPORT OF THE AUDITOR GENERAL\nThese included:\n\u2022 determining claimant eligibility;\n\u2022 processing benefit claims;\n\u2022 identifying and handling errors; and\n\u2022 accounting and reporting.\n8.24 For each element, the audit team considered the operating environment in\nwhich it is carried out. We also took into account any other circumstances which j\nwould affect the degree of exposure to error, abuse or fraud inherent in the]\nactivity. In doing so, we stressed in our examination the extent to which certain\ntypes of controls had been established within the Income Assistance Program. ]\nThese included:\n\u2022 supervision;\n\u2022 written guidance provided to staff at all levels;\n\u2022 staff training;\n\u2022 performance measurement;\n\u2022 systems design;\n\u2022 internal audit; and\n\u2022 accounting and other internal controls.\n8.25 Efficiency. Section 8 (2) of the Auditor General Act provides for the Auditor!\nGeneral to assess \". . . whether any program being administered by a ministry isj\nbeing administered economically and efficiently . . .\". Under this part of ourl\nmandate we considered the potential in the Ministry for establishing perform-l\nance measurement systems. We also assessed the extent to which the Ministry!\nhad put such systems in place where it appeared reasonable to have done so, and J\nthe manner in which these systems were being operated and used.\n8.26 Reporting. Our audit also examined the extent to which the Ministry has,!\nthrough the Estimates, Annual Reports and Public Accounts, reported informa-l\ntion which would indicate how the Income Assistance Program is being man-l\naged.\n8.27 An important indicator of the general adequacy of the Ministry's control systems!\nwould be a reliable estimate of the difference between the amount of IncomS\nAssistance actually paid out above or below the amount which under existing!\nlegislation and regulations should have been paid out. It is necessary to have!\nenough information that can be used to measure this difference. Only witinRM\ndata can the Ministry gauge the extent to which it would be cost-effective to\ndesign new controls and\/or redesign existing ones to reduce any discrepance\nSuch information is also useful for helping management to allocate its stafH\nresources more effectively. Accordingly, as part of our audit we examined the\namount of information available to the Ministry that would allow it to determine!\nthe difference between what it actually paid out in Income Assistance, and whaM\nit should have paid out, according to the legislation and regulations. The audH\nII\n SECTION 8, COMPREHENSIVE AUDIT       49\nalso extended to jointly launching a pilot project with the Ministry aimed at\nproviding a basis for carrying out such measurement in the future.\nI 8.28 Electronic Data Processing. Over the last several years, the Ministry has been\ndesigning sophisticated computer-based systems. It is now starting to implement\nthese systems as important tools for managing its day-to-day activities. The\ngrowing use of complex electronic data processing systems has important control and cost implications for the Ministry. Accordingly, under the provisions of\nthe Auditor General Act dealing with economy, we examined a major,\ncomputerized \"on-line\" Income Assistance system, from its early planning and\ndevelopment phases through to its current status.\n8.29 We noted that two recent audits of the controls in the Ministry's existing electronic data processing systems had been carried out by other government central\nagencies. Accordingly, we considered the findings of those audits when determining the nature and extent of our own review of controls within current\ncomputer-based systems.\nI 8.30 Internal Audit. Our review of the Internal Audit Group was carried out first, to\ndetermine the extent to which its work might affect the scope and timing of our\nown audit work, and second, to assess the extent to which the work of Internal\nAudit, as it is currently organized and carried out, is an effective part of the\nmanagerial control system.\n8.31 Financial Management and Control. In the financial management and control\nportion of the audit, we reviewed the strengths and weaknesses of the Ministry's\nkey financial management and control functions. These play a critical role in\nensuring appropriate and reasonable control both over non-statutory and program support expenditures and over assets and liabilities. In this part of the audit\nwe also examined the financial management and control function, as established by management and executed by the Ministry's Comptroller. We wanted\nto determine the extent to which this function-was providing proper support to\nIncome Assistance program managers and operating personnel at all levels.\n[AUDIT APPROACH\n8.32 Our audit identified areas with high inherent risk of error, abuse or fraud. In\ncarrying out our audit, we examined the financial management and operational\ncontrols within the Income Assistance system and assessed whether they\nappeared to be complete and appropriate for coping with the nature and degree\nof risk in the Program. We conducted interviews with ministry staff at all levels\nand reviewed documentation available in the Mini.stry, both to determine what\ntypes of controls had been implemented and to assess the extent to which they\nwere operating consistently and reliably. We did not, however, conduct tests\ndesigned to uncover specific instances in which error, abuse or fraud may have\noccurred.\n T\n50        REPORT OF THE AUDITOR GENERAL\n8.33 We documented and analyzed the Ministry's control systems and procedures.!\nThen we compared them with criteria or control standards that we felt were '\nappropriate, given the nature of the Income Assistance Program. The compar'B\nson allowed us to reach conclusions that would enable us to express an opinion\nas to whether the Ministry's control systems were providing the necessary levels\nand types of control.\n8.34 Our field work included over 230 interviews with personnel from Headquarters!\nand from 3 Regional and 10 District Offices. The Regional and District Offices!\nthat we visited were chosen to provide a sample of operating locations which ourl\nOffice and the Ministry considered to be generally representative of its opera-l\ntions.\n8.35 Our audit and the conclusions arising from it were limited to those areas which!\nlie for the most part within the authority and responsibility of the Ministry. In this\nSection, therefore, we have not dealt with deficiencies which may be linked to!\ngovernment-wide personnel, budgeting, financial and reporting systems and!\nadministration. Where we have identified such matters, we have documented\nthem in our files for possible further study and analysis on a government-wide!\nbasis.\nTHE INCOME ASSISTANCE ENVIRONMENT\nINTRODUCTION\n8.36 To place our findings and conclusions in their proper perspective and to help!\ngauge their significance, it is important for the reader to consider the environ!\nment in which the Ministry operates. Having a knowledge of the environment is!\nhelpful both in understanding what types of controls may be needed to ensure\nefficient and effective program delivery, and in assessing the risk of exposure ta\nerror, abuse and\/or internal and external fraud that may be present in a givenl\noperation. The importance of deficiencies in certain types of controls must alsol\nbe examined in the light of the inherent risk associated with the nature of the!\nIncome Assistance Program.\n8.37 We recognize that management, while designing and implementing controB\nsystems, must balance the effectiveness of certain types of controls and the\u2122\ncosts against their impact on operational objectives, such as prompt delivery of\nservices and other matters which management considers to be important,   i\nAccordingly, this Section does not attempt to analyze the cost-effectiveness of\nthe Ministry's existing control systems but it does reflect on mechanisms used by\nthe Ministry to make this determination itself.\n SECTION 8, COMPREHENSIVE AUDIT\n51\nEVIDENCE OF ELIGIBILITY\n8.38 As is the case for other welfare assistance programs in Canada and elsewhere,\nthe Ministry's program places the onus upon claimants to comply with applicable laws, regulations and procedures. The system requires that claimants prove\ntheir identity to the Ministry, provide proof of eligibility, and declare in writing\nthat the information which they have given is complete and accurate. Claimants\nare also required to update information monthly in order that they may continue\nto receive benefits. They must also respond truthfully to any relevant questions\nthat Ministry personnel may ask them.\n8.39 Even though the burden of proof of eligibility is placed on the claimant, it is the\nduty of the Ministry to take reasonable steps to ensure that the representations\nand any documentation that he or she may provide constitute acceptable and\nreliable evidence of eligibility. The Ministry needs this evidence in order to\ndetermine with reasonable accuracy the level of benefits to be paid to the\nclaimant.\n8.40 To assess a claimant's basic eligibility and the amount of benefit to be paid, the\nMinistry uses three major types of criteria (pursuant to the GAIN Act regulations):\n\u2022 level of income;\n\u2022 assets; and\n\u2022 certain factors regarding the claimant's personal circumstances.\nI 8.41 The criteria noted above are basic to any income assistance program. However,\nthese criteria, although unavoidable, do pose serious difficulties in administering the Income Assistance Program. Difficulties arise in ensuring, in a cost-\neffective manner that only those who are el igible for Income Assistance receive it\nand that they receive it in the right amount. In some areas, it is difficult (if not\nimpossible) to reliably show that the criteria have been met, even though the\nonus is on claimants to \"prove\" that their representations are accurate and\ncomplete.\n8.42 A claimant's representations regarding income level provide a good example. It\nmay be possible to verify that the income declared is in fact accurate, either by\naskingfor independent evidence of the amount of salary received, or by verifying\nwith employers all the amounts paid to a claimant. Nevertheless, it is still\npossible that the claimant has not declared all sources of income. To obtain\nevidence or assurance that this is not the case would require the Ministry to adopt\nprocedures that would not only be costly but which in some instances might be\nimpossible to apply. Obtaining adequate, reliable evidence with which to verify\nall of the statements made in an application would require exhaustive investigation on almost every new or renewed claim. It might also create both an\nenforcement-cost problem, client antagonism and continual questioning of\nuninvolved third parties, such as employers. It could also lead to unreasonably\nlong delays in providng funds to claimants.\n 8.43 Because of these factors, the Program involves a significant possibility that the]\nMinistry could pay certain claims in error, or that it could authorize claims which\nare not adequately supported. Avoiding paying such claims presents the Ministry!\nwith two major challenges: first, to design practical controls that operate before a]\nclaim is paid, and second, to design post-payment controls which may be]\nselectively applied.\nHIGH JUDGEMENT LEVELS\n8.44 The provision of Income Assistance is governed by a complex set of policies,\nprocedures and practices. These have been developed in order to try to ensura\nthat Ministry personnel consistently fulfill the intent of Income Assistance legisla-]\ntion and regulations. To do this, employees must not only have a thorough!\nknowledge of rules, procedures and acceptable practices, but they must also be]\nable to apply a high level of judgement in the field. They are often required to]\nconsider the particular circumstances of a claimant and accurately, consistently\nand quickly interpret and apply the appropriate regulations and ministry policy]\nto that case.\n8.45 Judgment is crucial because of the variables present in each case, and because!\nassessing the eligibility \"proofs\" submitted by claimants involves certain intangi-I\nble considerations. For example, Financial Assistance Workers must attempt to!\ndetermine the accuracy of oral representations, an especially difficult task when!\nthe claimant cannot provide adequate supporting documentation. Financial!\nAssistance Workers must also be alert to potential fraud or abuse. They must!\ndecide whether and when to use further investigative procedures. Again, logic!\nand intuitive processes are key elements in making these decisions.\n8.46 Often, judgement must be exercised in circumstances where the claimant's!\nemotional status or ability to understand and cope with rules and procedures!\nplaces significant pressure on the Ministry's staff. In these circumstances it is not!\npossible to set down a full range of rules which ministry personnel can always!\nmechanically adhere to in arriving at \"correct\" eligibility and benefit level!\ndecisions. Given the nature of Income Assistance, each claim must be!\napproached and handled according to its special circumstances. At the samel\ntime this provision for flexibility must be balanced by reasonable control proces-1\nses over the judgement exercised.\n8.47 Because the Income Assistance environment requires a high level of judgement!\ncontrol systems must permit flexibility and discretion. However, these systems!\nmust also ensure that judgements are well founded - that is, that they have\nconsidered all key factors and that they remain consistent both from location to\nlocation and from case to case.\n8.48 Accordingly, the Ministry should provide sufficient guidance to staff to ensL^B\nthat their judgements are well founded. This can be achieved through stronw\nil\n SECTION 8, COMPREHENSIVE AUDIT       53\nsupervision, extensive training and appropriate written instructions and guidelines. The Ministry should also be able to assess the extent to which the discretion left to personnel is properly exercised using post-processing quality control\nsystems.\nSELECTIVITY OF THE CONTROL PROCESS\n8.49 The Income Assistance Program is obviously attractive to individuals or organized groups who would attempt to defraud the Province. Accordingly, the need\nfor procedures or systems for detecting error and abuse is clear.\n8.50 The Ministry, however, must pursue any enforcement activity selectively. Because it must provide Income Assistance promptly to a large number of\nclaimants, it appears unreasonable to expect that the Ministry would continuously and exhaustively review all claims before paying them.\n8.51 The challenge is a dual one. First, the Ministry must devise effective enforcement\npractices. Then, it must decide at what level of application enforcement activities are no longer cost-effective in detecting and deterring non-compliance with\nthe law. In other words, wherever it is practical to do so, the Ministry should\nassess procedures first, probable success in detecting and deterring noncompliance, and the effect which these procedures will have on the level of\nservice. Well-designed and operationally effective control systems for detecting\nnon-compliance are vital to a program such as Income Assistance. The lack of\nsuch controls could not only fail to detect non-compliance, but could actually\nencourage it.\n8.52 In summary, each of these factors adds a dimension of complexity and risk to the\nIncome Assistance delivery system. The Ministry must establish a control system\nwhich cost-effectively keeps the risk of error, fraud and abuse to a minimum.\nDesigning and maintaining such control systems, however, is made more difficult by the need both to provide prompt service and to gather an appropriate\namount of eligibility evidence within a short period of time. The high level of\njudgement which field and supervisory personnel must exercise and limitations\non the Ministry's ability to prove a claimant's eligibility when a claim is made,\npose technical and administrative challenges in designing and operating cost-\neffective control systems. Such systems must exist and operate reliably if they are\nto cope with the high risk inherent in the Ministry's operating environment.\nDecentralization, scarce resources and the attractiveness of Income Assistance\nto abuse also necessitate management systems which can ensure both accountability and that operating controls are working effectively.\n 54        REPORT OF THE AUDITOR GENERAL\n1\nSUMMARY OF AUDIT OBSERVATIONS\nINTRODUCTION\n8.53 Our audit showed that the Income Assistance operating environment poses a]\nmajor challenge for the Ministry's executive and personnel in designing and\nmaintaining strong and cost-effective management and financial control sys-J\nterns.\n8.54 The audit focused on the Income Assistance activities and certain ministry-wide]\ncontrol functions. It showed that the Ministry has recognized the need for]\nimprovement in many areas and that it has begun working toward strengthening\nits control systems. Over the last several years, managers at Headquarters and in |\noperating locations have taken major steps to administer their programs more]\nefficiently by introducing computer-based systems, adopting a more formal]\napproach to allocating resources among Regional and District Offices and\nimplementing certain organizational changes.\n8.55 Since 1978, the management challenge has become even greater because of an]\namalgamation with municipal social and welfare agencies, which effective\u2122\ndoubled the number of operating staff within the Ministry. It also required the!\nconsolidation of a variety of operating and administrative systems and proce-J\ndures.\n8.56 Briefly, we have concluded that while the Ministry does have certain basic!\ninformation to base its resource allocation process on that until such time as a!\nnumber of key areas are substantially strengthened, the Ministry's procedures for!\nmeasuring efficiency will not provide management and the Legislative Assembly!\nwith reliable and complete information about either the efficiency of the admin-l\nistration of the Income Assistance Programs or the effectiveness of its control!\nsystems. At the time of our audit, the Ministry had already begun work to remedy!\nweaknesses in a number of those key areas.\n8.57 In addition, we concluded that the Ministry would have to devote furthe!\nsubstantial effort to ensuring the effectiveness of certain operating control!\nmechanisms such as supervision, written guidance to personnel, training, InteaJ\nnal Audit and quality control. In addition there is a need to implement an!\naccounting and control system for payments which are identified by the Minisfm\nas being in error. All are especially critical when we consider the risk inherent\u2122\nIncome Assistance activities.\n8.58 Of particular significance is the observation that management was aware of\nalmost all major areas which required improvement.\n SECTION 8, COMPREHENSIVE AUDIT\nREPORTING OF PERFORMANCE AND ACCOUNTABILITY INFORMATION\n8.59 The Ministry has available a number of indicators or sources of information that\nmanagement currently uses to assess how economically and efficiently it is\nmanaging the Income Assistance Program. For example, management monitors\ncaseload activity as an indicator of performance. Managers also use internal\naudit reports, special studies, inspection reports and complaints and comments\nfrom the public to assess the quality of the service provided.\n8.60 However, none of these indicators attempts to determine systematically the\namount of Income Assistance which is paid in error because of mistakes on the\npart of the employees and\/or claimants. This error rate would serve as a key\nindicator of performance. Another ministry performance indicator (the number\nof cases handled by staff) is too general to be useful in analyzing the overall\nefficiency of the Program. We did note, however, that certain regions had begun\nworking to define indicators and measurement systems that would more clearly\nshow the relationship between outputs or services delivered and the resources\nused to produce them. However these efforts have been fragmented.\n8.61 Without such performance information, which provides a detailed enough\npicture of the composition of caseloads and Financial Assistance Worker activity\nand quality control, management lacks a firm basis for its decisions on control\nsystems and on how it can allocate its resources most efficiently.\n8.62 The Ministry should gather this type of information and include it in its Annual\nReport, the Estimates and the Public Accounts. These documents should present\nthis information clearly and concisely so that readers can easily understand it.\nSuch information should also clearly demonstrate how well the Ministry has\nmanaged the funds entrusted to it.\n8.63 We recognize that designing and implementing the necessary performance\nmeasurement and reporting systems will be difficult in the complex and highly\njudgemental Income Assistance operating environment, and that these systems\nwill likely require some time to implement fully. While the state of the art in\ndeveloping these types of measurement systems is evolving, we feel that systems\nwhich measure and report on both the levels of inputs and physical outputs (such\nas caseload) and the quality of the work performed (for example, the difference\nbetween the amount actually paid out in Income Assistance benefits and that\nwhich should have been paid) are feasible and quite likely would be cost-\njustified to implement. Other jurisdictions have developed and are using such\nmeasurements systems.\n8.64 The Ministry has recognized this, and it is working closely with our Office to\ncarry out a pilot project aimed at measuring the efficiency of its operations and to\nsubsequently analyze the cost-effectiveness of its existing control systems.\n 56        REPORT OF THE AUDITOR GENERAL\nII\nFINANCIAL MANAGEMENT\n8.65 Our audit examined the financial management function as it is organized and\ncarried out throughout the Ministry. We have concluded that the Ministry has ]\nrecognized the need for an effective financial management function. Since 1975\nthe Ministry has been giving increasing emphasis to this area, at which time it\nappointed a full-time Ministry Comptroller.\n8.66 While action has been taken to provide for a stronger comptrollership function j\nand additional staff have been authorized, opportunities exist for enabling ittpj\ncontribute further toward helping the Ministry to operate its programs more\nefficiently. This contribution is particularly important in terms of the role which j\nfinancial management could play in ensuring first, that operating managers\nreceive reliable and timely information, and second, that program managers]\nhave access to enough competent guidance in the areas of controls and systems j\ndesign. Such guidance should not be prescriptive. Instead, it should allow\nmanagers flexibility in the methods they use to achieve the appropriate degree of,\ncontrol.\nINCOME ASSISTANCE CONTROL SYSTEMS\n8.67 Our audit examined both the kinds of controls used by the Ministry in its Income\nAssistance activities and the manner in which these controls were being applied. 1\n8.68 Our audit revealed that the Ministry had recognized the need for and had\nemphasized a number of control mechanisms at various levels. We believe these\nto be essential to achieving a level of control commensurate with the environ-]\nment and control needs of the Income Assistance Program. For example, the j\nMinistry has provided for supervision and staff training as crucial elements in I\nachieving control.\n8.69 Nevertheless, we observed that the Ministry had not provided for certain other]\ntypes of controls. In particular, no formal quality control system was in place that]\nwould provide assurance that the necessary levels of accuracy and service were!\nbeing achieved in providing Income Assistance to claimants.\n8.70 We also noted that the Ministry has not established an information system to\naccount for errors and overpayments of Income Assistance. The Ministry knows J\nthat these overpayments occur regularly (as they do in any complex system).!\nHowever, the Ministry does not have the information it needs to determine the!\namount of these overpayments. Second, it lacks information both on the!\nmethods staff use to handle known cases of overpayment and on the success rate!\nin recovering overpayments when the Ministry decides to do so.\n8.71 Our audit of other key control elements, such as supervision of and written!\nguidance for personnel, indicated that improvement would be necessary to!\nU\n SECTION 8, COMPREHENSIVE AUDIT       57\nensure that these controls would be consistently and reliably applied, both\nwithin and amongst individual operating locations.\n8.72 Staff must also have adequate training if they are to be expected to administer the\nhigh volume of cases reliably and consistently in an environment where there are\nmany employees operating in a highly decentralized way. Accordingly, staff\ntraining should be considered as an essential control element. We observed that\nthere was a need to coordinate these programs and enhance the planning,\nmonitoring and evaluation of the effectiveness of the Ministry's formal training\nand on-the-job efforts.\n8.73 We also observed that day-to-day internal controls in the Income Assistance\nsystem were not being applied consistently in various locations. This inconsistency may be due in part to the limited guidance provided to field personnel who\nare responsible for ensuring that controls such as cross checks, segregation of\nduties and approvals are used properly.\n8.74 At other levels in the existing control system, we observed that performance\nmeasurement techniques had not yet been sufficiently refined to enable them to\nprovide reliable information about the adequacy of day-to-day operations as a\nwhole.\n[ 8.75 The Ministry has developed an Internal Audit Group, which is primarily dedicated to reviewing Income Assistance case files in District Offices. These reviews\nfocus on the extent to which Ministry personnel comply with established procedures and policy. This task, although important, does not extend to reviewing\ncontrol systems, including those components of the Income Assistance systems\nwhich are computer-based.\n| 8.76 Ensuring that control systems and procedures can meet the needs of the Ministry\nrequires that they be applied in a coordinated manner, as part of an integrated,\ncarefully considered, larger control plan. We observed that the Ministry did not\nreview all elements of control to ensure that they in fact did operate as part of a\nclosely-knit control framework.\n: MANAGEMENTOF ELECTRONIC DATA PROCESSING SYSTEMS\nI 8.77 Our audit of the Ministry's electronic data processing systems focused on the\nextent to which due regard had been given to economy and control in the design,\nplanning and development of a major new on-line computer system used in the\nIncome Assistance Program. This system is the first one in the Ministry to\nincorporate advanced computer technology. It will significantly affect the controls and the efficiency of Income Assistance activities for the next several years.\nI 8.78 Our audit was not designed to question either the need for this system or\nmanagement's decision to proceed with it; however, our audit showed that there\n 58        REPORT OF THE AUDITOR GENERAL\n7\nhave been significant procedural deficiencies both in the initial decision-making i\nprocess and in the controls used to manage the project.\n8.79 We recognize that the development of complex computer systems is a difficult\nprocess. This is especially true for organizations that are trying to adopt an\nunfamiliar technology. We also realize that management must make difficult\ndecisions, balancing the risk of adopting this technology with the risk of not\nmoving forward in this area. Under these conditions it is extremely important'\nthat senior management have available complete, reliable, and accurate information at all stages of planning, design and implementation. This information\nshould be presented in an understandable format to help guide the decisionmaking and project-monitoring processes.\n8.80 Recently, the Ministry recognized that it needed more reliable information\nbefore proceeding beyond the pilot stage toward full implementation of the new\ncomputer system. Accordingly, it decided to examine the cost and control\nimplications of this system more closely before implementing it fully. Our audit j\nrecommendations support this course of action and are designed to help the\nMinistry reassess and design new control mechanisms relating to the develop-]\nment of the computer-based system. Such controls would include evaluating tha\nsystem after it has been implemented. We understand that the Ministry has also\nrecently taken action to strengthen the organization of, and standards for, any\nfuture development of this and other computer-based systems.\nINTERNAL AUDIT\n8.81 The Ministry has established an Internal Audit Group, which as we previously I\nnoted, carries out audits of Income Assistance case files. These audits are]\nprimarily concerned with assessing the extent to which Ministry personnel have ]\ncomplied with established policy and procedure in processing Income Assist-1\nance claims.\n8.82 Our audit examined the scope of responsibilities given to the Internal Audit]\nGroup, its organization, staffing and its reporting relationships. As well, we]\nexamined both the audit techniques that it uses and the reports which the Group ]\nissues. The purpose of our review was to assess the extent to which we could rely J\non internal audit work and alter the extent and scope of our own audit work. We]\nalso wanted to determine whether the Internal Audit function was providing the |\ntype of strong support to management that we believe is necessary.\n8.83 We concluded that although the Internal Audit Group was carrying out the task!\nostensibly assigned to it, considerable scope exists for expanding its role.I\nMoreover, it will be necessary to establish procedures and techniques which are!\nappropriate to fulfilling such an expanded role. Until these have been de-|\nveloped, we will be able to place only limited reliance on the work of Internall\nAudit, particularly in evaluating control systems and in examining the issues of!\neconomy and efficiency.\nJ\n SECTION 8, COMPREHENSIVE AUDIT\n59\n5.84 In our opinion, until the role of Internal Audit has been further developed,\nmanagement will not be in a position to realize the full benefits that a strong\nInternal Audit function could provide.\n5.85 An important observation arising from the audit, as previously stated, was that\nmanagement was aware of almost all of the areas requiring improvement.\nManagers were looking for solutions to problems in many areas and certain\ncorrective action was underway. Our Office is aware that many improvements\nhave already been made and that making the changes recommended in this\nSection will pose a significant challenge for the Ministry, possibly over a considerable period of time. Such improvements cannot be effected easily for two\nreasons: First, only limited resources of the appropriate quality are available in\nthe Ministry. We therefore cannot expect that all of the required tasks can be\naccomplished within a short time. Second, the Ministry will have to use considerable caution in charting a course of corrective action. It will also have to\ncarefully choose among alternative solutions to its problems.\n'.86 Some improvements suggested in this Section may require that the Ministry carry\nout enough preparatory work to ensure that an environment exists which will\nenable it to realize the intended benefits of new or altered control mechanisms.\nFor example, we noted that the Deputy Minister and his Executive have strongly\nemphasized the need for accountability within the Ministry. However, in our\nopinion, successful implementation of systems for measuring performance will\nrequire that managers and staff at all levels be first, convinced of the need for\nsuch systems and second, trained in their effective use.\n.87 Accordingly, our observations and recommendations are aimed at improving\nmanagement and control systems, especially by encouraging the Ministry to\nwork toward:\n\u2022 developing and implementing performance measurement systems to indicate the efficiency of the Ministry in administering its programs, and\nreporting this information to the Legislative Assembly;\n\u2022 assessing the cost-effectiveness of existing control systems and providing\nfor an appropriate quality control system;\n\u2022 ensuring that errors and overpayments, once detected, are properly controlled and accounted for;\n\u2022 ensuring both that key controls (particularly the supervisory process) are\nthoroughly evaluated and that they are operating consistently and reliably\nin all locations;\n\u2022 continuing to place strong emphasis on training;\n\u2022 stressing coordination, cost control, identifying training needs, course\ndelivery and subsequent evaluation of training programs;\n\u2022 establishing a strong project management process and an organization to\nensure that electronic data processing systems are developed economically;\n\u2022 obtaining the maximum benefits from the financial management function;\n ^\n60        REPORT OF THE AUDITOR GENERAL\n\u2022 upgrading the role of Internal Audit to provide needed support to management.\n8.88 The following segments of this Section present the major observations and\nrecommendations resulting from our audit.\nREPORTING PERFORMANCE AND ACCOUNTABILITY INFORMATION\nINTRODUCTION\n8.89 This Section of our Report deals with the extent to which the Ministry has\nestablished satisfactory procedures for:\n\u2022 measuring the reliability and efficiency of its Income Assistance operations; and\n\u2022 reporting performance information, both to management and to the Legislative Assembly.\nThis segment of our audit was conducted under section 8 (2) (a) of the Auditor]\nGeneral Act, and attempts to assess the extent to which management knows (and\nreports) how well it is managing its operations.\nEXTENT OF EXAMINATION\n8.90 Our examination of the efficiency issue required us to assess first, whether the\nMinistry had defined its operational objectives in measurable terms; second, ]\nwhether the link between its activities and the results which the Ministry hoped!\nto achieve were logical and reasonable; and third, whether the Ministry was in J\nfact measuring the efficiency of its programs against its operational objectives ]\nwhere feasible to do so. In accordance with the provisions of the Auditor General ]\nAct, our audit did not conduct a program evaluation of the Income Assistance ]\nPrograms. Program evaluation would have required us to ask whether or not the\nMinistry had met its more broadly defined or ultimate objectives, such as\ndistributing wealth more equitably, or ensuring a minimum standard of living for I\nall residents of British Columbia. In the Government of the Province of BritisM\nColumbia, program evaluation is a responsibility of Deputy Ministers in cooper-J\nation with the Treasury Board and its staff.\nDEFINING THE OPERATIONAL OBJECTIVES OF THE INCOME ASSISTANCE!\nPROGRAM.\n8.91 In order to examine the potential for measuring and reporting efficiency, onel\nmust first clearly understand the Ministry's operation and its operational objecJ\ntives. Exhibit 2 displays an operational model of the Income Assistance Program. I\nThe model identifies program activities and their operational objectives. WS\nused this model to determine first, the extent to which activities related directly!\nto their respective objectives and second, whether the Ministry could measure at\nreasonable cost the extent to which it was achieving these objectives.\n SECTION 8, COMPREHENSIVE AUDIT       61\nExhibit 2, Ministry of Human Resources\nLYMENTSTOORON BEHALF OF INDIVIDUALS\n~Y~\nfc\n\\\nAppli.\nX.\nV\nJ\nC    c\n\\\nD\u00abOT\nnltlon\n7~\nCheques\n>.\n\/*         >\nL     j\n^\nWoF,,^\nX__7~\n.92 Our analysis of the Income Assistance activities and their effects or results has led\nus to conclude that the key operational objective of the Ministry's activities was\nto \"provide financial assistance to applicants in accordance with the law and\nregulations\". All activities, as shown on the chart, and their products and effects\ncontribute to this objective. However, it should be noted that there exist other,\nhigher level objectives which underlie the Income Assistance Program. We did\nnot examine these as part of our audit.\n8.93 Instead, our audit concerned itself with the potential for first measuring and then\nreporting on the extent to which the Ministry achieves its main operational\nobjective. This would serve as a key indicator of how well the Ministry managed\nthe funds entrusted to it. The goal of this form of measurement is to estimate for\ncases processed by the Ministry, the extent to which Income Assistance paid out\ndiffers from the amount justified by the law and regulations.\n8.94 Once the Ministry has a reliable estimate of the amount of such differences, it\ncan then assess the cost-effectiveness of installing controls which might reduce\nthis amount.\nGATHERING INCOME ASSISTANCE PERFORMANCE INFORMATION\n8.95 The feasibility of measuring the degree to which Income Assistance payments\nare being made to the right people in the right amounts has been demonstrated\nboth within the Ministry and in other jurisdictions. In 1978, the Ministry carried\n 62        REPORT OF THE AUDITOR GENERAL\nout a \"verification\" study of the *GAIN - OAS\/G1S supplement program. This\nstudy recommended that measurement be a continuous activity, and that it\nshould be capable of detecting changes in the error pattern within the Program.\n8.96 The Alberta Department of Social Services and Community Health conducted a I\nstudy in 1978, the purpose of which was to provide an accurate and comprehen-1\nsive picture of welfare abuse within that Province. The report determined the\napproximate percentage of public assistance cases involving fraud or error, and ]\nidentified high-risk client categories. Finally, it recommended preventative steps j\nto reduce the incidence of abuse in the future.\n8.97 In the United States, the Department of Health and Welfare requires that indi-1\nvidual states operate a quality control system for their welfare programs before j\nthey can qualify for federal cost-sharing.\n8.98 These studies, without exception, found that a significant proportion of the j\nincome assistance cases sampled contained errors resulting in overpayments. I\nThese results point clearly to the need for the Ministry to include this type of\nmeasurement in its Income Assistance system. Such a step would enable it to ]\nidentify high-risk client categories and subsequently to adjust payment control ]\nsystems to reduce the incidence of under and overpayments.\n8.99 At the present time, the only information that the Ministry collects on the |\nperformance of its Income Assistance Programs is produced as secondary output |\nfrom the computerized pay-out system. In its most accessible form, this informa- ]\ntion is printed in the monthly \"Fact Books\", which are provided to senior ]\nmanagement. These Fact Books provide information on the amounts of money ]\npaid out, but do not indicate the frequency of under and overpayments.\n8.100 The computer-generated information related to the Ministry's pay-out system I\nprovides most of the data on the Ministry's activities and clients. However, other I\nsources of useful information exist. For example, field staff refer cases of sus- I\npected misrepresentation to Inspectors. Records are kept of both the number and I\noutcome of cases that these Inspectors review. Another possible source of I\nsupplementary information on the level of abuse in the Income Assistance!\nsystem could be the public at large.\n8.101 We noted earlier that other jurisdictions have been able to gather empirical data I\non the efficiency of their Income Assistance programs. If the Ministry were to!\ncollect data measuring the incidence and dollar value of over and underpay-8\nments in the GAIN program, it could detect and remedy weaknesses in its I\neligibility determination and payment activities. Such information would also I\nhelp to reduce speculation over the extent of welfare abuse in the Province. A I\n*GAIN - OAS\/GIS - Guaranteed Available Income for Need - Old Age Security\/Guaran!\nteed Income Supplement.\n4\n SECTION 8, COMPREHENSIVE AUDIT       63\ncost-benefit analysis of alternative solutions for remedying weaknesses would\nenable the Ministry to choose the most cost effective option.\nINFORMATION CURRENTLY REPORTED TO THE LEGISLATIVE ASSEMBLY\n8.102 The current sources of information on Ministry activities and performance that\nthe Legislative Assembly and the public must rely on are the Ministry's Annual\nReport, the Estimates, and the Public Accounts. The Annual Report's main\npurpose is to describe the nature and intent of ministry programs. It also contains\nstatistical information, but only at a summary level. The information provided in\nthe Estimates and the Public Accounts consists primarily of historical and highly\nsummarized data on actual and estimated expenditures.\n8.103 These three sources of information, in our opinion, provide little indication of\nthe general efficiency of Income Assistance Programs. Usually this performance\ninformation has not been accumulated for and linked to each program objective.\nIt is also difficult to compare among geographical locations and for different\nperiods of time and does not report on the outputs or benefits of the programs.\nFor these reasons, little insight has been provided into the central operational\nissue in the Income Assistance Program - that is, how much money the Ministry\nhas actually paid to individuals compared with what theoretically it should have\npaid according to the regulations.\n8.104 The level of under or overpayments is central to measuring the Ministry's Income\nAssistance activities. If it were available, this information would be of equal\nimportance to both management and the Legislative Assembly. It would indicate\nto the Legislative Assembly the extent to which its GAIN legislation has been\nefficiently administered. By including this information in the Annual Report, the\nEstimates and the Public Accounts, the Ministry would be taking a major step\ntoward improving accountability within the organization. Although no information relating to the efficiency of the Income Assistance Programs has thus far\nbeen provided to the Legislative Assembly, the Ministry has taken certain initiatives in this direction:\n\u2022 It has, through a Resource Allocation Committee, taken preliminary steps\nto determine what indicators could be used to measure staff efficiency and\nproductivity.\n\u2022 It has worked closely with our Office in planning for a pilot test, to be\nconducted shortly, to determine the potential for cost-effectively measuring overpayments in the Basic GAIN Income Assistance Program. We\nconsider this pilot to be important in providing a foundation for a full-scale\ndeviation test.\n8.105 We noted that the Ministry could also provide other information in its Annual\nReport which would assist the Legislative Assembly in gaining insight into the\nMinistry's performance. For example, historical information covering several\nyears, comparing and analysing resource utilization and outputs, would be\n 64        REPORT OF THE AUDITOR GENERAL\n1\nparticularly useful in providing a general picture of significant performance\ntrends. In particular, it would be valuable to present trends over several years for\na number of key indicators of program activity and performance. Examples of\nsuch indicators are average caseloads carried by Income Assistance staff, ratios\nof supervisory to line staff, proportion of cases involving under and overpay- :\nments, and the proportion of total caseload referred to the Inspectors. Such trend\ndata would not only indicate whether the efficiency of specific activities is\nimproving or deteriorating, but would also provide baselines against which to\nassess the effect of changes in ministry procedures. It would also provide an early\nwarning system to alert managers to areas in which further analysis or investigation should be done.\n8.106 As well, inconsistencies in the treatment accorded to certain items from year to!\nyear in the Annual Report should be eliminated.\nDAY-TO-DAY EFFICIENCY INFORMATION\n8.107 Sufficient reliable information about how efficiently the Ministry is delivering theB\nIncome Assistance Program on a day-to-day basis is currently not available I\nbecause:\n\u2022 Indicators concerning productivity of staff have not been established.\n\u2022 Standards or expectations of output and operational definition (in terms of I\nboth quality and quantity) have not been established.\n\u2022 The Ministry has done little to date either in identifying sources of this 1\ninformation or in developing methods for accumulating it.\n8.108 One of the major underlying causes of the Ministry's current inability to reliably I\nmeasure day-to-day performance is the lack of clearly articulated, consistently I\nused operational definitions for certain activities. We noted, for example, thatH\nfrom office to office, and sometimes within offices, various personnel under- I\nstood the meaning of certain key output indicators (such as \"caseload\")H\ndifferently.\n8.109 The Ministry has defined qualitative and quantitative standards or expectations I\nfor some work activities. However, these standards have been expressed only in I\nvery general terms. As a result, they do not provide useful \"yardsticks\" againsM\nwhich to measure performance. Accordingly, it is difficult for the Ministry to I\nhold managers and staff accountable for either meeting or failing to meetB\n\"acceptable\" performance levels. We noted that in certain areas significant\u2122\neffort had been devoted to defining outputs and devising measurement proces- 1\nses. However, this work had not been communicated to other personnel with 1\nsimilar concerns. Nor was it part of a coordinated effort to establish a compre- I\nhensive performance measurement system.\n8.110 We also observed that, in one important area, the Ministry had not gatheredB\ncertain financial information relating to the amount of identified overpayment^H\n SECTION 8, COMPREHENSIVE AUDIT\n65\nMoreover, management had not set the parameters for dealing with these\noverpayments. As a result, it was not possible to determine the day-to-day\nefficiency in managing identified overpayments.\n8.111 We recognize that the Income Assistance Program operates in an environment in\nwhich a high level of judgement must be exercised in individual cases. Cases do\nnot always follow standard patterns. Each of these tends to have unique features\nand, accordingly, it would be difficult to set engineered standards. However,\npast experience, combined with selective testing and setting standards for the\nquality of work to be done, would suggest that reasonable criteria could be\nestablished for measuring performance based on time and groups of cases.\n8.112 By establishing these standards, the Ministry, over time, could improve control\nover the Income Assistance Program. It could use these standards as benchmarks\nagainst which to compare performance as workloads fluctuate. For example,\nsupervisors would be able to monitor how the quality of work varies as the\nworkload changes.\n8.113 As part of its efforts to improve management control, the Ministry should develop\nclearly defined performance indicators and work expectations, in terms of both\nquality and quantity. These should then be used as the basis for accumulating\nand reporting performance information at all levels in the Ministry in order to\nallow management to act promptly when warranted and to improve the allocation of resources.\n8.114 The Ministry should ensure that it reports performance information to the Legislative Assembly which indicates the extent to which it has been successful in\ndelivering an efficient program. The information should include data on the\ncost-effectiveness of various alternative methods of delivering the program.\nFINANCIAL MANAGEMENT AN D CONTROL\nINTRODUCTION\n8.115 The Ministry's Executive has recognized that the organization, environment and\nactivities of the Ministry indicate the need for a broad-based financial function.\nWe found that the Comptroller's mandate is comprehensive and that the organization of the financial function allows him to provide direction and support in all\nkey areas of financial management and control. We found that during recent\nyears the Ministry has been strengthening and giving more emphasis to the\nfinancial function, particularly by appointing a full-time Comptroller in 1975\nand, more recently, by increasing staff in the Comptroller's Office.\n8.116 The purpose of our audit was to assess how the financial function was operating\nin practice. We particularly looked at the manner in which it was providing\ndirect and functional guidance to operating managers and the extent to which it\n 66        REPORT OF THE AUDITOR GENERAL\nwas doing so. We also wanted to find out whether the Ministry's financial\nmanagement and control practices were likely to meet the objectives implicit in\nthe Comptroller's mandate and in our audit criteria.\n8.117 The results of this segment of our audit indicate that while much has been done to\nachieve better control, considerable scope remains for improving the contribution that financial management and control can make and should make in\nhelping the Ministry to operate its programs both efficiently and with proper\ncontrols. The Comptroller and his staff were aware of several areas needing\nimprovement. Many of the weaknesses that they have identified generally\nparallel those outlined in this segment.\n8.118 Our audit findings relate mainly to six general areas, as summarized below.\nMANDATE OF THE FINANCIAL FUNCTION\n8.119 Neither the mandate nor the organization of the financial function has been\ndocumented in manuals for distribution throughout the Ministry. We found that\nthe responsibilities of the financial function and its relationship to other organizations within the Ministry were unclear to field personnel and to headquarters\nstaff having electronic data processing and line operating responsibilities.\nSTAFFING OF THE FINANCIAL FUNCTION\n8.120 The Ministry assisted us during our audit by completing profiles of personnel\nwhom the Comptroller had identified as having significant direct or indirect\nfinancial responsibilities.\n8.121 The profiles indicated that there are five members of the Comptroller's Office\nand one other in the Management Services Division who had formal accounting!\nqual ifications. Three other members of the Comptrol ler's Office were enrolled in\ndegree-granting accounting courses. Many others have been employed at least\nten years in the public sector. Turn-over had been low, and most had had long\nservice in their present positions. Generally their qualifications and experience\nin electronic data processing were very limited.\n8.122 Personnel having financial qualifications were concentrated at Head Office, and\nwere mainly involved in day-to-day transaction processing activities and in the\nbudgeting process.\n8.123 We noted that control weaknesses have frequently been identified by the Comptroller's Office, but there has been little progress in resolving them. When staff\nfrom the Comptroller's Office are assigned to work on projects to strengthen\nfinancial management and control, day-to-day operating priorities frequently\narise. Because they take precedence over new projects to improve or review\ncontrols, the success rate for such projects has been low. In addition, as discus-\nJ\n sed below, the Comptroller's Office has not provided sufficient functional\ndirection to line managers and others having financial responsibilities.\nSTAFF TRAINING\n8.124 We examined the type and frequency of training provided to members of the\nComptroller's Office and other staff having significant financial responsibilities,\nand noted that training efforts have been limited. Most training sponsored by the\nMinistry has been connected with general acounting and financial courses that\nstaff have needed to obtain professional qualifications. Training has tended to\navoid the more specific training needed to cope with the Ministry's particular\noperating needs.\n8.125 The need for financial training of operating personnel who have significant\nfinancial responsibilities has taken on added importance because many of the\nemployees have had little previous exposure to matters relating to financial\ncontrol. Many transaction processing errors have occurred. Such errors, in part,\nmay be attributable to the lack of financial training and experience of staff.\nMoreover, instructions which would help staff reduce these errors, are generally\nlacking. If operating personnel having financial responsibilities are to work\neffectively, they will need to be trained in how to meet appropriate accounting\nand control standards.\n8.126 Successfully coping with the financial control elements in more complex systems requires staff who have appropriate formal qualifications combined with\nrelated practical experience. To be effective, such personnel must not only\nthoroughly learn the systems they must deal with, they must also understand the\ngeneral operating environment and the needs of the people who are using these\nsystems. Financial personnel should have a knowledge of systems documentation and cost benefit analysis techniques to properly analyze systems and\nrecommend appropriate ways to improve them. They must also have a thorough\nknowledge of concepts which underlie the effective design of controls for both\nmanual and computer systems. If controls are to be effective, staff must also be\nable to identify and assess compensating controls so that an acceptable balance\nbetween the desired level of service and the necessary level of control can be\nachieved.\nFUNCTIONAL DIRECTION\n8.127 The role of the financial function is fulfilled in two ways. First, members of the\nComptroller's Office carry out accounting tasks, such as processing payments,\nreconciling accounts and preparing financial statements. These activities represent the direct responsibilities of the Comptroller. Second, the Comptroller is\nresponsible for ensuring that appropriate financial control exist in all operating\nsystems and procedures throughout the Ministry. These activities represent his\nindirect or \"functional\" responsibilities.\n 68        REPORT OF THE AUDITOR GENERAL\n1\n8.128 We observed that the Comptroller's Office had only limited involvement in\ncarrying out certain important functional responsibilities. These included reviewing financial and operating procedures and establishing sound financial\ncontrols for both manual and computer systems. Although organizational links\ndo exist between the Comptroller's Office and Regional and District Offices,\nthey need to be further developed. We also found that more written guidance\nand training should be provided to personnel at all levels concerning financial\nmanagement and control matters.\nWRITTEN GUIDANCE\n8.129 We observed that the Comptroller's Office has not yet completed a Headquarters accounting manual to guide its own staff. Similarly, written payroll procedures for both Head Office and the field have not been provided. The Ministry is\nplanning to extensively revise the accounting manual and the clerical procedures manual that Regional and District Offices are now using. The Comptroller\nacknowledges that his department should participate to a greater extent in\nestablishing accounting and control criteria, standards and procedures for all\noperating systems with financial implications. Such procedures would be contained in manuals and distributed within the Ministry as appropriate.\n8.130 There is also a need to further develop and document budgeting procedures.\nSuch procedures should promote the use of short-term operational work plans\nthat are coordinated within a longer-term strategic planning process. Budgeting\nprocedures should require a review of program objectives, priorities and alternatives for existing programs as well as for new programs being proposed. Written :\nguidance should also be provided for analysis of variances and for taking ,\ncorrective action when activities deviate from plan.\nMANAGEMENT OF THE FINANCIAL FUNCTION\n8.131 The financial function lacks a comprehensive plan for ensuring that efforts to\nstrengthen financial management and control are coordinated, and that they are\ngiven the appropriate priority. We have observed that new tasks frequently take\nprecedence over those already underway. We recognize that the Ministry's size\nand complexity make change inevitable. However, the nature of the Ministry, ;\ncombined with its program to increase the use of compter-based systems and to\nincreasingly decentralize, makes a comprehensive plan critical to strengthening\nthe financial function.\n8.132 In order to ensure that it realizes the full benefits of a strong financial management and control function, the Ministry should:\n\u2022 rew'ew the number and level of personnel in the financial function to\nensure that it is strong enough to effectively carry out its responsibilities;\nand\n\u2022 ensure that it prepares a comprehensive operational plan detailing the I\n goals and objectives, activities, timing, performance criteria and priorities\nfor the Comptroller's Office.\n8.133 The Comptroller's Office should:\n\u2022 develop its lines of functional responsibility and provide more guidance\nand advice to line managers in order to help them achieve the necessary\nlevels of control over program expenditures in a flexible, efficient manner;\n\u2022 ensure that it further develops planning, budgeting and reporting systems\nto make them more useful in measuring performance and in allocating\nresources;\n\u2022 improve systems and procedures designed to ensure that revenues and\nexpenditures and assets in the Ministry's care are being adequately safeguarded; and\n\u2022 ensure that all financial and control implications of new systems, such as\ncomputer-based systems, have been taken into account and that all key\nsystems and procedures are adequately documented.\nCONTROLS IN THE INCOME ASSISTANCE SYSTEM\nINTRODUCTION\n8.134 This segment examined the operational and management controls in the Income\nAssistance Program's delivery system.\n.135 Our audit examined the principal tasks associated with providing Income\nAssistance. These included:\ndetermining eligibility;\nprocessing benefit payments;\ndistributing payments to claimants;\ncontrolling identified errors and overpayments;\nmonitoring performance; and\nadministering federal cost-sharing systems.\n.136 Certain control elements associated with each of these tasks appeared to be\nparticularly important in helping to ensure a level of effective control. These\nelements were especially important considering the Ministry's Income\nAssistance operating environment, and included the following;\nwritten guidance;\nsupervision;\ntraining;\ninternal and accounting controls;\nquality control;\ninternal audit;\ninspection; and\nperformance measurement and reporting.\n h\n70        REPORT OF THE AUDITOR GENERAL\n8.137 We discuss each of the above in the sections which follow. Because of their  I\nimportance, overpayment control and administration and cost-sharing are 1\ndiscussed separately in paragraphs 8.187 to 8.197 and 8.198 to 8.210\nrespectively.\nWRITTEN GUIDANCE AND SUPERVISION\n8.138 The Ministry has made some effort to provide its field personnel with written 1\nprocedural guidelines. Such guidelines are intended to encourage consistent*\nhandling of Income Assistance claims. Much of the existing written guidance 1\ncovers the routine clerical tasks, such as filling in forms correctly so that claims 1\ncan be processed by the computer. However, guidance is often lacking or\ninadequate for many non-routine tasks that require District Office staff to I\nexercise their judgement and discretion. For example, written guidelines for I\ncarrying out such tasks generally indicated only what staff should do when a I\n\"particular condition\" exists. They did not suggest how staff should decide I\nwhether or not such a condition does, in fact, exist.\n8.139 We observed that in the absence of written guidance, management must rely to a J\ngreat extent on the knowledge and discretion which field staff are able to bring to\nbear in interpreting and applying ministry policy from case to case. As a result, !\npolicy application has been inconsistent among the District Offices.\n8.140 We realize that field staff need to be able to operate flexibly in responding to the I\nvarying, often unique circumstances associated with different cases.\nAccordingly, strict guidelines would not be appropriate for many tasks.\nNevertheless, it is necessary for the Ministry to balance the need for flexibility I\nagainst the risk of inconsistency in delivering its programs.\n8.141 The Ministry has already developed some useful material to guide field staff in fl\nhandling certain cases that require them to use high levels of judgement. For I\nexample, the \"Child Abuse Manual\" permits staff to take a flexible approach I\nwhen dealing with individual cases of child abuse. At the same time, itexplicity I\nrequires staff to fully consider a number of factors when they are deciding how to I\nhandle such cases. In our opinion, the Manual could serve as a model for the I\nMinistry to follow in developing written guidelines to assist staff in delivering the I\nIncome Assistance Program.\n8.142 Supervision at the District Office level is one of the most important controls for I\nhelping to ensure a reliable and efficient delivery system. Accordingly, weH\nreviewed the supervisory process, particularly to find out how the Ministry had I\ndefined the role and responsibility of supervisors and to determine the nature of\nthe day-to-day activities carried out by supervisors, and the indicators used to\nmeasure a supervisor's performance.\n8.143 The Ministry has recognized the importance of the District Supervisor's role and \u25a0\n SECTION 8, COMPREHENSIVE AUDIT        71\nhas documented supervisory responsibilities in job descriptions. These responsibilities include the supervision of professional staff on a regular basis, staff\ntraining and orientation (including performance evaluation) and guidance in\ninterpreting ministry policy. The job descriptions also note that District Supervisors must have skills in public relations, administration, and management.\n.144 We noted during our interviews that the concept of the District Supervisor's role\nvaries widely among field offices. In some instances, our audit revealed that\nSupervisors were not familiar with the official (operational) supervisory job\ndescription.\n. 145 We found that the extent of day-to-day supervision of certain types of activities is\nnot consistent from one district to another. For example, we found instances in\nwhich Supervisors had relatively little direct involvement in monitoring and\nguiding the work of Financial Assistance Workers and administrative personnel;\nin others, Supervisors worked more closely with their staff. We also observed\ninstances in which line personnel were making important decisions on their\nown; in our view, Supervisors should have been consulted first.\n.146 The mix of work in each District Office consists of delivering both Income\nAssistance Program and almost all of the other programs that the Ministry offers\nin Family and Children's Services. Activities include counselling and other tasks\nnot necessarily related to providing financial assistance to claimants.\n.147 Because of the many types and \"mix\" of ski lis required of District Office staff, the\nDistrict Supervisor has a particularly challenging job. In addition to having the\nadministrative or management skills needed to run an office, the District Supervisor must be able to exercise strong \"interpersonal\" skills when called upon to\nguide and monitor staff. The District Supervisor must also be technically knowledgeable about all programs delivered through his or her office.\n. 148 Accordingly, District Office Supervisors may be hard pressed to cope with all of\nthe District Office's operations in a consistent and reliable manner. For example,\nwe noted that while some Supervisors indicated that they regularly reviewed up\nto 100% of Income Assistance case files, others either reviewed very few, or\nreviewed them only infrequently. Given the level of judgement required to\nmanage Income Assistance claimant files and the often large dollar amounts\nassociated with each claim, we believe first, that supervisory review of these files\nshould be consistent, and second, that the Ministry should determine the level of\nreview appropriate to this task.\n. 149 In add ition to being responsible for managing their staffs effectively and efficiently, District Supervisors should be held fully accountable for the manner in which\nthey discharge these responsibilities. Clear, detailed criteria against which to\nmeasure the qualitative and quantitative performance of Supervisors are therefore essential.\n 72        REPORT OF THE AUDITOR GENERAL\n1\n8.150 We observed that although the District Supervisors reported to Regional Mana- '\ngers, the bases used to evaluate supervisory performance were not clear. Our '\ninterviews indicated that performance evaluations of Supervisors were frequently highly subjective assessments, and that the criteria used varied from region to ;\nregion. In some instances, the criteria used to measure performance had not\nbeen explained to the Supervisors. These situations were further aggravated by a J\nlack of performance expectations, operational definitions and reliable and com- .\nplete historical data for measuring performance. As a result, Supervisors were I\nnot being held accountable to the extent that would seem appropriate.\n8.151 In summary, the Ministry has recognized the importance of the Supervisor.\nHowever, the present job description and the system used to measure a Supervisor's performance and accountability need significant improvement. Unless\nthe Ministry does improve them, Supervisors will not be able to play as strong a\nrole as they should. Nor will they have adequate guidance and feedback to help\nthem to improve their contribution.\n8.152 We recognize that the Ministry is taking steps to improve training for Supervisors. !\nOver the last several years it has moved to put certain accountability processes in\nplace. It has also reduced the number of programs which are dealt with at the :\nDistrict Office level and it has improved the communication channels between >\nSupervisors and their peers and superiors. Continued emphasis in these areas j\nshould help to strengthen the supervisory process.\n8.153 In order to improve the supervisory function, the Ministry should:\n\u2022 clarify the role and authority of District;\n\u2022 establish standards for expected performance;\n\u2022 monitor performance against the indicators established to improve\naccountability and to ensure that these are considered when Supervisors j\nare being appraised; and\n\u2022 continue to provide more and better training at the supervisory level.\nTRAINING\n8.154 We examined the following major kinds of staff training activities within the j\nMinistry:\n\u2022 identification of individual and group training needs;\n\u2022 development and delivery of courses to meet these needs including costing\nof training; and\n\u2022 evaluation and reporting on the effectiveness of existing training programs.\n8.155 Needs Identification. We observed two conditions which we believe were]\nsignificantly detracting from the Ministry's ability to identify its staff's training j\nneeds. First, detailed performance criteria had not yet been clearly articulated ]\nfor all key operating positions. Second, there was little reliable performance j\ninformation available which could be used to determine whether staff members]\n SECTION 8, COMPREHENSIVE AUDIT        73\nmight need certain training in order to better perform their duties. As a result, it\nwas difficult for staff and their supervisors to identify areas where on-the-job or\nformal training programs might be needed.\n8.156 Our interviews with district and regional staff indicated that the process of\nidentifying training needs was generally subjective and that it was carried out in a\nfragmented manner. For example, while some offices had linked training needs\nidentification directly to employee performance evaluations, in others, staff\nmembers were left to identify their own knowledge and skill deficiencies.\n8.157 We observed that the Ministry was taking steps to improve the needs identification process. Recently, for example, it prepared a preliminary list of knowledge,\nskills and aptitude requirements considered necessary for Financial Assistance\nWorkers to correctly complete the new application forms and reliably assess the\neligibility of claimants. In October 1980, a similar list was drafted for District\nSupervisors. Both of these initiatives should help district staff to identify individual skill gaps which should be eliminated through either on-the-job or formal\ntraining.\n8.158 Course Development and Delivery. Under the current system, responsibility for\nstaff training has been assigned to each region. Regional Managers, in consultation with their Regional Training Co-ordinators, are responsible both for identifying individual and group training needs and for providing and acquiring cost-\neffective programs that will meet those training needs. A central Staff Training\nDivision provides support, where needed, to the region and may either develop\nor acquire courses to fill any gaps in employee knowledge or skills within the\nvarious regions.\n8.159 On-the-job training also plays an important role in augmenting the skills of\nindividual personnel. Inexperienced Financial Assistance Workers are often\nexpected to become fully operational with little supervision or monitoring by\nDistrict Supervisors because of time and other constraints. Accordingly, the\non-the-job training that the Ministry offers is critical in developing the skills of\nnew financial assistance staff.\n8.160 We noted that a comprehensive list of all Income Assistance-related courses\noffered by the Ministry, either centrally or through its various regions, was not\navailable. Partial lists that did exist were generally not available to regional\npersonnel. As a result, any decisions to develop new courses were not based on a\nknowledge of what was already available within the Ministry. Accordingly, the\npossibility of duplicated and fragmented training effort exists.\n8.161 In general, the few centrally developed courses covered only the more routine,\nmechanical tasks and often did not encompass more judgemental, discretionary\ntasks. Although several regions were trying to provide the kind of training that in\ntheir view was needed, we nevertheless noted that these efforts were carried out\n 74        REPORT OF THE AUDITOR GENERAL\napart from any comprehensive ministry training plan.\n8.162 The Ministry was aware of these problems and was taking steps to remedy them.\nFor example, it was developing a course for new Supervisors. To help regions\nmeet their own training needs, the Ministry has also drafted and distributed a list\nof resources available for training Financial Assistance Workers.\n8.163 We noted that the cost of training as reported in the accounts includes only\nout-of-pocket costs, such as those for materials and outside lecturers. The cost to\nthe Ministry associated with the time the employees spend on courses is not\nincluded as part of the total training costs. Accordingly, the cost of training is\nsignificantly understated.\n8.164 Evaluation and Reporting. The information accumulated in training reports from\nthe regions and Headquarters was not sufficient for management to assess either\nthe effectiveness or the cost of its training programs. Although staff who take\ncourses are usually asked to fill out course evaluation forms, the Ministry does\nlittle to evaluate how the training affects the work of those who receive it.\n8.165 At the time of our audit, the Staff Training Division had recently drafted a new\nreporting format which was being used on a trial basis to accumulate statistics on\nthe effectiveness of its training. Although the new format still did not provide for\nreporting training costs, we understand the Ministry is considering incorporating\ncost information in the report in future.\n8.166 The Ministry should continue its efforts to augment its training program. Particular emphasis should be given to:\n\u2022 improving the process for identifying training needs;\n\u2022 ensuring effective coordination of training efforts;\n\u2022 evaluating and reporting the results of training; and\n\u2022 accumulating and reporting information showing all training costs.\nINTERNAL AND ACCOUNTING CONTROLS\n8.167 Our audit examined controls such as segregation of duties and cross-checks,\nauthorization and approval levels, physical security of forms and cheques.\nThese controls come into play largely after Financial Assistance Workers have\ndecided on an applicant's eligibility for Income Assistance.\n8.168 The effectiveness of the above types of controls depends largely upon the]\nguidance and support provided to staff through written instructions, traiiiffla\nprograms, and supervision.\n8.169 Because of the small size of District Offices and the need for prompt service, it is\ndifficult for the Ministry to establish strict segregation of duties and rigorous]\ncross-checks. Nevertheless, we observed certain areas in which the Ministry\n SECTION 8, COMPREHENSIVE AUDIT       75\ncould have used these control techniques. For example, the Ministry could\nrequire that senior personnel authorize and review various types of transactions\nor certain groups within the transaction population.\n8.170 We noted that the Ministry had tried to document the approval level for its\nadministrative activities. However, the Ministry had not produced any formal,\ncomprehensive listing of staff showing the authority delegated to them. Such\ndocumentation would reflect more clearly the areas of responsibilities and\nwould make staff more clearly accountable for their actions.\n8.171 The Ministry provides little guidance on maintaining the physical security of\ndocuments which are used in the Income Assistance payments system. We\nfound that physical security over documents, particularly over prepared cheques, varied from office to office. We observed some instances in which there is\nvirtually no system to ensure that all cheques received by District Offices are\ndistributed to the correct claimants.\n8.172 The Ministry should re-examine the extent to which it has made use of accounting and internal controls at the District Office level and should ensure that those\ntypes of controls are consistently used whenever possible.\n8.173 The Ministry should review its procedures for maintaining physical security over\ndocuments to ensure that only authorized persons have access to them.\n[QUALITY CONTROL\nB5.174 In monitoring the efficiency of Income Assistance operations, it is important for\nthe Ministry to have reliable measures of the time and cost required to process\nclaimants' applications for benefits under the Program. The Ministry should also\nbe able to know how well operating personnel at all levels process these\napplications and carry out their other activities. Systematically applied quality\ncontrol reviews are commonly used in many organizations as control and\nmeasurement techniques to evaluate how well staff perform. We noted, however, that quality control as a distinct function has not been provided for in the\nIncome Assistance Program. We believe that this represents a major control\ndeficiency particularly in light of both the high risk of error and level of judgement which staff must exercise daily.\n.175 The Ministry does have certain indicators of the quality of its claim processing.\nThese include Internal Audit, the Inspection Group and public response to the\nProgram. However, since Internal Audit carries out its reviews long after payments are made, and because it is not in a position to assess the impact of errors,\nsuch reviews are only limited substitutes for quality control.\nSimilarly, Inspection does not compensate for the lack of quality control. Inspections are carried out only in response to claims already identified by employees\nas either having possibly been paid in error, or involving fraud or abuse.\n T\n76       REPORT OF THE AUDITOR GENERAL\n8.176 In conjunction with developing performance measurement indicators and criteria, the Ministry should consider implementing a quality control function to]\nprovide managers with reliable, current information about how efficiently and\\\naccurately claimant files are processed.\nINTERNAL AUDIT\n8.177 Our comments on Internal Audit are discussed in detail in paragraphs 8.234 to\n8.252.\n8.178 Here we note only our observations about the work of the Internal Audit Group |\nin relation to the Income Assistance Program. We found that the scope of\nInternal Audit was limited to carrying out tests to verify that staff had followed\nprocedures in processing applications from claimants. There was little or no ]\nevaluation of the propriety of systems being used either at Headquarters, in j\nregions or District Offices. In addition, the Internal Audit Group has not at- ]\ntempted to quantify or otherwise assign an order of magnitude to its findings. As ]\na result, its work provides, in our opinion, little assurance to management about ]\neitherthe extent to which key controls are operating reliably and consistently, or ]\nthe potential impact of procedural non-compliance.\nINSPECTION\n8.179 The Ministry has instituted, as a key detective and deterrent mechanism, an\nInspection Group to investigate possible cases of fraud or abuse and to enforce!\nthe penalties provided under the GAIN Act, and in some cases, under tna\nCriminal Code. Operating personnel are required to refer to the Inspection!\nGroup all cases in which they suspect or have evidence that client-initiated!\noverpayments have occured. However, the Ministry has not provided guidance!\nto staff to help ensure that all such cases are in fact referred to the Inspection\nGroup. In addition, we noted that the Ministry had not furnished detailed criteria\nto Regional Managers and Inspectors for applying various types of recovery!\nprocedures and penalties which are provided for in law and under ministry!\npolicy.\n8.180 Our interviews with field staff showed that there are inconsistencies in referring!\ncases to the Inspection Group. For example, ministry policy states that client-\ninitated overpayments must always be referred to the Inspection Group. Howev-I\ner, in actual practice, staff sometimes interpret this requirement in various ways\u2122\nSome interpret it as meaning \"referrals in all cases\", and others as \"referrals!\ninvolving flagrant fraud\". This type of inconsistency could lead to dissimilM\ntreatment of similar cases in various locations throughout the Province. Moreov-1\ner, it could weaken the effect of Inspection in deterring fraud and abuse.\n8.181 In order to realize the potential benefits of the inspection function, the Ministim\nshould give guidance to staff in identifying cases which they should refer to f\/je|\nInspection Group.\nil\n SECTION 8, COMPREHENSIVE AUDIT       77\nPERFORMANCE REPORTS\n8.182 Performance information provided to senior management is an important tool in\nensuring a reliable and efficient Income Assistance delivery system. Having such\ninformation is particularly important in a decentralized, labour intensive organization such as the Ministry of Human Resources.\n8.183 During our review, we noted that performance information has generally neither\nbeen developed nor used to assist in controlling operations. This deficiency was\ndiscussed in greater detail in paragraphs 8.89 to 8.114 above.\n8.184 We also observed that the Ministry had not clearly defined the performance\nstandards or expectations, both qualitative and quantitative, for activities common to all District Offices. As a result, field staff were attempting to provide\n\"appropriate service\" to clients with little, if any, clear idea of what the Ministry\nmeant by \"appropriate\" and \"service\". Such ambiguity could introduce inconsistencies and inefficiencies into the delivery system.\n8.185 In recent years, the Ministry has established a Resource Allocation Committee,\nwhich has begun to identify broad indicators of staff performance.\n8.186 Our recommendations on reporting performance and accountability information is covered by paragraph 8.113 above.\nIDENTIFIEDOVERPAYMENTSANDERRORS-CONTROLANDCOLLECTION\nINTRODUCTION\n8.187 As may reasonably be expected, occasions will arise in the Income Assistance\nsystem when funds are paid to persons who are ineligible for all or part of these\nfunds. This section of our Report focuses on how the Ministry deals with these\noverpayments once they have been identified.\np.188 Our audit covered the following activities related to overpayment, control and\ncollection:\n\u2022 making collection and write-off decisions;\n\u2022 collection action and procedures; and\n\u2022 accounting and reporting.\n(THE NEED FOR FORMAL GUIDANCE IN CASES OF OVERPAYMENT\np. 189 We recognize that deciding what action to pursue in each case of overpayment\nrequires considerable judgement and that it would be impractical, if not undesirable, to develop a procedures manual that attempts to cover all possible circumstances relating to such overpayments. However, it is important to document certain circumstances that staff commonly encounter in handling many\noverpayment cases.\n 78       REPORT OF THE AUDITOR GENERAL\n. 190 Legislation and certain manuals within the Ministry provide some formal, writ-!\nten guidance. The GAIN Act places the onus on the claimant to notify the!\nMinistry of any change in circumstance, and provides penalties where\". . . duel\nto . . . any . . . cause, an individual has received income assistance . . . to!\nwhich (he or she). . . is not entitled . . .\". The Ministry has also provided its staff!\nwith general guidelines that help staff in deciding how to handle overpayment\nsituations. These guidelines emphasize attempts to recover overpayments, but\nrecognize that sometimes recovery will not be possible.\n.191 We have concluded that the Ministry does not provide enough guidance and!\ninstructions to its staff to ensure that they deal consistently and efficiently with |\ncases of overpayment. Most of the direction in dealing with overpayments is]\ncontained within one manual. However, staff must refer not only to several!\nsections within this document, but to other manuals as well, in order to be J\ncertain of having covered and understood Ministry policy.\n.192 Manuals and directives have not clearly defined which individual or groups arel\nresponsible for such activities as overpayment identification, disposition deci-J\nsionsand action, and reporting and monitoring. Consequently, staff do not know!\nwhere responsibility lies for these areas. In addition, the manual provides only!\ngeneral guidance and instruction as to when, how, and what circumstances!\nshould be considered in individual cases. We also noted that Supervisors often J\nneither provided guidance to staff dealing with overpayments, nor approve.\u2122\ncollection action. Thus, Financial Assistance Workers often had complete con-j\ntrol of the decision-making process; Supervisors did not usually review a staff]\nmember's work unless he or she requested such a review.\n.193 The Ministry has relied entirely on its District Office personnel to identify!\noverpayments that have occured. From our interviews in the field, we observed a]\ngood deal of confusion, and in some instances disagreement, over who is 1\nresponsible for identifying and reporting these overpayments. Confusion also!\nexists over the nature and extent of the procedures that should be used to identify J\ncases of overpayment.\n1.194 Generally speaking, it is the Financial Assistance Workers who decide how!\noverpayments are to be handled once they have been identified. These workers!\nreceive little or no advice on this subject from other Ministry personnel.\nAccordingly, the reliability and the consistency of these decisions depend!\nlargely upon the skill and training of personnel. As a result, many of these!\ndecisions relating to overpayments could be inconsistent. We observed instan-l\nces in which the disposition decision reflected a lack of understanding of!\nministry policies on the part of district staff. For example, some of the field staff!\ninterviewed indicated that they might consider such factors as office error!\namount of overpayment, and client ignorance of requirements when they arel\ndeciding whether or not to recover the overpayment.\n if\nSECTION 8, COMPREHENSIVE AUDIT        79\n8.195 The Ministry has not provided for a system to accumulate and report on identified overpayments and to account for their subsequent treatment and disposition. Because there is no system to record identified overpayments, there is no\nassurance that all overpayments are controlled through to their ultimate disposition. Because there is no system for reporting the identification and disposition of\noverpayments, management does not know how serious the problem is, what is\ncausing the problem, or whether the overpayment recovery decisions and\nprocedures are being applied consistently across the Province. As a result, the\nsystem does not meet standards for reliable accounting and control.\n^196 Responsibility for dealing with cases of overpayment should be clearly established for individuals and groups within the Ministry. The Ministry must also\nprovide sufficient instruction to staff to ensure that overpayments are identified\nand are disposed of appropriately and consistently from district to district.\nACCOUNTING AND REPORTING\nMp97 In order to ensure that the Ministry meets adequate standards of accounting and\ncontrol for identified overpayments, it should establish an overpayment and\ncollection system to ensure that identified overpayments are recorded, properly\ncontrolled and accounted for, and that write-offs are properly authorized. This\nsystem should be incorporated into the overall performance information system\nand the information produced should be reported promptly to appropriate levels\nof management.\nCOST-SHARING\nINTRODUCTION\n8.198 Sources of funds. The Ministry has various sources of funds in fiscal 1980,\nincluding reimbursements of $26 million from municipalities and $10 million\nfrom the Department of Indian Affairs. However, the Federal Government\nprovided the largest amount of money in the form of cost-sharing under the 1967\nCanada Assistance Plan Act (CAP). The Ministry may recover 50 percent of\ncertain expenditures as defined by this Act. Such cost-sharing amounted to $234\nmillion, or 36 percent of total Ministry expenditures of $649 million for the 1980\nfiscal year. Claims relating to prior years have resulted in additional receipts of\nalmost $15 million during the year. The Ministry received another $7.4 million\nfrom the Federal Government on behalf of the Ministries of Health and Attorney\nGeneral. In view of the importance to the Ministry of the funds received through\ncost-sharing under the CAP Act, our audit has emphasized this area.\n13*1 99 Responsibility areas for cost-sharing. Three responsibility areas for cost-sharing\nexist within the Ministry. The first is the Federal\/Provincial Agreements Section,\nwhich provides the Ministry's primary operational liaison with federal departments and other provinces concerning social services. One of the activities of the\n 80        REPORT OF THE AUDITOR GENERAL\nSection is ensuring that it negotiates the maximum revenues available under the!\nCanada Assistance Plan. In carrying out this activity, the Section identifies!\nopportunities within the Ministry for cost-sharing, and provides guidance con-l\ncerning the effect that federal cost-sharing will have on ministry program policM\nThe two other responsibility areas involved in cost-sharing are Program Manage!\nment and the Comptroller's Office. Program Management is responsible for\nestablishing policies and operating procedures that satisfy cost-sharing require!\nments. The Comptroller's Office is responsible both for establishing the adminis!\ntrative procedures for submitting proper claims, and for ensuring that cosjM\nsharing funds are received.\n8.200 The Report of the Auditor General for the year ended March 31, 1979 com!\nmented on the need to allocate enough staff to enable the Ministry to claim!\ncost-sharing funds relating to expenditures made in prior years. The Report alstj\ncalled for the Ministry of Human Resources to clarify the roles of various othe!\nMinistries in claiming these funds. These needs still exist. Last year's Report also!\nreferred to the British Columbia Lottery Fund and the possibility that certain!\ngrants made by the Fund may be cost shareable. This matter has also not beem\nresolved.\nAUDIT FINDINGS\n8.201 Prior years' expenditures not yet claimed. The Comptroller's Office has iden\u2122\nfied certain expenditures made in prior years to which cost-sharing agreements!\nmay apply. As yet, the Ministry has not claimed these expenditures, which are\nestimated to total at least $30 million. A significant part of this sum may be\nshareable.\n8.202 Certain older capital projects representing approximately 80 percent of the\noutstanding $30 million were originally administered by the Ministry of LandsB\nParks and Housing.\nApproximately four years ago, staff from the Ministry of Human Resource*\nsurveyed the files on these capital projects in order to support claims for cosH\nsharing funds. Almost three years ago the responsibility for administering thesa\nprojects and the related files were transferred to the Ministry of Health. HowevJ\ner, because of manpower shortages within Human Resources, no work has beem\ndone other than to periodically enquire about the location and condition ofth\u00ab\nfiles. In December 1980 the Ministry of Health found the files, and we undeM\nstand that staff in the Ministry of of Human Resources are actively pursuing cosB\nsharing.\n8.203 Assessing the cost-sharing activity for current year's expenditures. The ComH\ntrailer's Office has prepared reports showing that funds from cost-sharinM\nagreements now amount to almost 37 percent of total expenditures. AlthouOT\nthis percentage has increased during recent years, uncertainty exists over wh\u00bb\n.\nII\n w\nSECTION 8, COMPREHENSIVE AUDIT       81\nthe optimum level of cost-sharing should be, both for individual programs and\nfor the Ministry as a whole. Until the Ministry determines the optimum ratios,\nmanagement will have difficulty in objectively assessing cost-sharing under the\nPlan.\n.204 Determining priorities for additional cost-sharing. Senior staff judge that most\nopportunities for cost-sharing have been identified and that the Ministry should\ngive priority to claiming and collecting these funds. However, before the Ministry can formally establish these priorities, it must list all cost-sharing opportunities. For each one it must then estimate the amount of funds it might receive\nunder a cost-sharing agreement, and the amount of work required to substantiate\na claim for those funds.\n8.205 Cost-sharing considerations in computer-based systems. On July 1, 1980 the\nMinistry transferred the GAIN for Seniors Income Assistance Program from one\ncomputer system to the main \"Version II\" Income Assistance computer system.\nThis transfer has caused several problems. For example, information is not\ncurrently available from the Version II system concerning payments made to\ncertain groups. Until the Ministry has this information, it will have to wait for\nreimbursement of approximately $600,000.\n.206 A question has been raised about the cost-sharing implications of having to\ncancel and redeposit certain cheques produced by the Version II computer\nsystem. It is estimated that cheques totalling $12 million are redeposited each\nyear. There is uncertainty whether the reversing entry properly reflects the\nshareable and nonshareable portions of these Income Assistance payments.\nIncome Assistance personnel are discussing this with the computer department\nand with the Comptroller's Office.\n3.207 Income Assistance overpayments and Accounts Receivable considerations. The\ncost of financial assistance payments may be shared only if payments are made\nin accordance with provincial legislation, that is, within the limits prescribed\nunder the Canada Assistance Plan Act. In Paragraphs 8.187 to 8.197, we\nobserved that although overpayments can occur in any disbursement system, the\nnature of the Income Assistance delivery system increases the risk that such\noverpayments will occur. An earlier segment (paragraphs 8.89 to 8.114) deals\nwith performance measurement and discusses the pilot study launched to measure the difference between what the Ministry should have paid in Income\nAssistance and the amount that it actually did pay. It is important to note that\noverpayments have implications for cost-sharing. For example, the Ministry\nforfeits cost-sharing for Income Assistance payments designated as recoverable,\nor for those not followed up for collection in accordance with the Act.\ni.208 Improvements made and plans for continuing progress. While much remains to\nbe done, the CAP Section within the Comptroller's Office has identified and\nmon itored a number of cost-sharing projects even though it has been chronical ly\n 82        REPORT OF THE AUDITOR GENERAL\nshort-staffed. In addition, the CAP Section has begun to report on the status oil\nprojects and has prepared several chapters of an operating manual to guide stafB\nworking on cost-sharing activities. Cost-sharing has also been established on ani\n\"advance sharing\" basis in several instances. Under this arrangement, cosH\nsharing funds are now received on a monthly basis, with subsequent adjustment\nwhen final figures become available.\n8.209 The CAP Section feels that its efforts to explain the importance of cost-sharing.H\nfield personnel have been worthwhile. Continuing education would be benefS\ncial and we support related plans to provide seminars for internal audit personn\u2122\nto make them more aware of the significance of cost-sharing arrangements. Wm\nalso believe that the Comptroller's Office should review systems and procedures\nthroughout the Ministry to ensure that information on which cost-sharing clairjS\nare based is accurate and complete. The need for this capability would bel\nseparate from any cost-sharing work that the Internal Audit Group might carrj\nout.\n8.210 To ensure that the Ministry realizes as much as it can from cost-sharing agreem\nments, it should direct its attention toward:\n\u2022 ensuring that cost-sharing responsibilities are documented and understood\nwithin the Ministry, and that other ministries also understand their cosm\nsharing responsibilities;\n\u2022 refining assessment criteria and reporting procedures used to monitcm\nperformance;\n\u2022 allocating enough staff to ensure that claims for cost-sharing are complete\nand up to date; and\n\u2022 ensuring that all operating systems work toward supporting optimuim\ncost-sharing.\nELECTRONIC DATA PROCESSING\nINTRODUCTION\n8.211 The Ministry uses a computer system to produce monthly Income Assistai^B\ncheques for claimants. This system plays an important role in the IncorM\nAssistance control structure.\n8.212 Since early 1979, two other government agencies have audited various facets^]\ncontrols in this system. Those audits revealed various control weaknesses, whi<\u00ab\nwere reported to management. The Ministry has since acted on the majM\nrecommendations arising from these two audits.\n8.213 Although we examined controls in this system to some extent as part of our\ncomprehensive audit, we felt that a third audit of the system within two yeaH\nwould be uneconomical both for our Office and for the Ministry. Instead, our\naudit concentrated on the development of a major enhancement of this systerw\n i^r\nSECTION 8, COMPREHENSIVE AUDIT       83\n8.214 The enhanced system, called \"On-line Version II\", will allow the Ministry's\nDistrict and Regional Offices throughout the Province to obtain and update\ninformation about claimants almost instantly, through the use of computer\nterminals. Accordingly, On-line Version II has the potential to strengthen the\nMinistry's control of its Income Assistance delivery.\n3.215 At the time of our audit, On-line Version II was not yet in operation. Therefore,\nwe could not examine the controls in the system itself. Instead, we concentrated\nupon the methods used by the Ministry in developing the enhanced system. First\nwe wanted to see if adequate attention had been paid to identifying the necessary\ncontrols, and subsequently to designing and incorporating them into the system.\nSecond, we wanted to assess the extent to which the systems development had\nbeen managed with due regard for economy.\n3.216 Controls. In examining this area, the audit team found that:\n\u2022 The internal control needs of On-line Version II had not been systematically taken into account in the early stages of its development.\n\u2022 Controls had not been evaluated for cost-effectiveness.\n\u2022 The system had been pilot tested in two operating locations, but the\nMinistry had not yet taken action to ensure that the controls in the system\nwould be fully analyzed prior to further implementation.\n\u2022 The responsibilities of all parties who were to have contributed to the\nspecification, design and testing of system controls had not been clearly\ndefined. As a result, the controls ultimately incorporated within the system\nwere essentially those which the development group had selected, with\nonly minimal input from users and the financial group.\n; .217 The need for well-designed and effective controls in this system is critical,\nparticularly in the light of the advanced nature of the technology involved and\nthe impact of introducing this technology into an environment where operating\npersonnel have had little exposure to this type of computer system.\n.218 While we were not in a position to evaluate the potential effectiveness of the\ncontrols which have thus far been incorporated into the pilot system, we are\n|   nevertheless concerned that both the lack of user and financial group involve-\n\u25a0   ment and the lack of preparatory training for line personnel may weaken the\neffectiveness of controls.\n' ZONOMY\n.219 We examined the extent to which due regard to economy had been demonstrated in developing the Version II computer system under the following head-\n\u25a0 ings:\n\u2022 planning;\n\u2022 cost benefit analyses;\n\u2022 project management; and\n 84        REPORT OF THE AUDITOR GENERAL\n\u2022   system development methodology.\n8.220 Planning. We observed that planning had not been based on either a formal!\nMinistry business plan or an electronic data processing development plan. The]\nsubmissions made to the Treasury Board to obtain project funding, however, did]\nidentify certain objectives which the Ministry believed could be attained by j\nimplementing the proposed system (e.g., improved fraud control, better servj\u00ae8\nto clients by combining data from various programs within the Ministry).\n8.221 The project plans that we examined underestimated the degree of expertise*\u2122\ncomputer technology necessary to successfully implement the on-line system!\nThe plan also failed to consider how the system, when implemented, could\naffect both controls in other parts of the organization and the Ministry's operating]\nenvironment.\n8.222 The executive group did not have enough reliable information provided in an!\nunderstandable format to ensure that its decision making process was based onj\ncomplete and accurate information.\n8.223 We also noted that at the time the project was conceived, few individuals in the\nMinistry had the qualifications and experience necessary to design and imple!\nment this type of advanced computer system. Moreover, a system for ensuring ]\nthat proper management and project controls would be established and reliably!\nmaintained did not exist, for the most part, for the duration of the project.   i\n8.224 Cost benefit analysis. In part because the planning process and the information!\nderived from it were incomplete, the Ministry underestimated the size of thel\nproject. Moreover, the costs of the project were more than had been estimated!\nand it has taken significantly longer to complete than had been expected.\n8.225 The cost benefit analysis accompanying the Treasury Board submission com\ntained certain deficiencies. For example, it either omitted or underestimated the\ncost of several items. A significant portion of the estimated dollar benefits wefS\nintangible. For example, the Treasury Board submission stated that staff time!\nwould be saved in the District Offices as a result of eliminating manual procei\ndures. However, savings in staff time were not computed in such a way as to!\nprovide a true indication of the probable cost savings. This submission also\ncontained no provision for the range of possible uncertainty associated with the\ncost estimate.\n8.226 Accountability for costs relating to developing the project was unclear, particu-a\nlarly when the British Columbia Systems Corporation became involved with|M\nWe also noted that despite the large cost escalations in the project, until recentH\nno special review process for re-examining this system had been installed.^\n8.227 Project management. A preferred practice in systems project management isthjijB\nproject managers should be drawn from that part of the organization which will\n.\n \u2014\nSECTION 8, COMPREHENSIVE AUDIT       85\nultimately use the system under development. However, the manager of the\nOn-line Version II project was not a member of the main group that would be\nusing the system. He, along with the Ministry Systems Committee, the British\nColumbia Systems Corporation and different user committees, had various\nresponsibilities for the project. However, these responsibilities had not been\nclearly defined at any stage of the project, although it appeared that the project\nmanager had, in fact, borne the major responsibility, and hence should have\nbeen accountable for the entire project.\n8.228 We recognize that much of the uncertainty surrounding responsibility for parts of\nthe project resulted from the organizational changes that occurred when the\nVancouver Resources Board and the Ministry were amalgamated. In 1980, the\nMinistry carried out a study to determine the best way to organize the electronic\ndata processing function, and is currently acting on the recommendations.\n8.229 Our audit concluded that the project management techniques used in the project\nwere inadequate for:\n\u2022 predicting and controlling the project duration and its cost;\n\u2022 controlling changes in specifications; and\n\u2022 coordinating the activities of the ministry staff and outside agencies who\nbecame involved in this project at various stages in its development.\n8.230 System development methodology. Our audit indicated two major flaws in the\nmethodology used to develop the system: First, what the system was expected to\ndo (what users needed) had not been specified in enough detail to guide the\ndesign and construction phases of the system's development. Second, the manual procedures required to use the system in the District Offices were not substantially addressed soon enough. As a result, when testing of the \"completed\"\nsystem was begun in mid 1979, it was found that the system did not perform\naccording to the Ministry's expectations and needs. Accordingly, implementation has been delayed.\n8.231 To ensure that controls have been adequately provided for in the Ministry's new\nOn-line Version II system, the Ministry should:\n\u2022 review the system to ensure that all necessary control criteria have been\nmet before fully implementing it; and\n\u2022 adopt clear control standards to be adhered to in any future computer\nsystem developments.\n8.232 To ensure that due regard to economy is achieved in future development\nprojects, the Ministry should ensure that it has sufficient qualified personnel\nbefore undertaking such projects, that a suitable organization structure is established (including provision for user and functional direction), and that responsibilities of all key project participants are clearly articulated and understood.\ndata\n1.233\nThe Ministry should adopt a clear set of generally acceptable electronic\n 86        REPORT OF THE AUDITOR GENERAL\nprocessing system development standards including provisions for:\n\u2022 preparing complete cost benefit analyses during the planning stage;\n\u2022 properly monitoring costs and technical specifications;\n\u2022 reporting in a complete and useful format information to senior manageW\nment;\n\u2022 establishing user-acceptance criteria;\n\u2022 evaluating the system before and after implementation; and\n\u2022 ensuring that controls provided for in and over the operating systems are\nadequate.\nINTERNAL AUDIT\nSCOPE OF OUR AUDIT REVIEW\n8.234 We reviewed the Ministry's Internal Audit function to determine the extent tS\nwhich this function, as it is currently organized and carried out, forms an\neffective part of the Ministry's financial management and control system. TheJ\nreview also assessed the extent to which the Internal Audit Group might affeM\nthe scope and planning of our own regular attest audit work. Our revie^B\nincluded all major facets of Internal Audit as follows:\nmandate;\nreporting relationships;\nplanning;\nstaffing;\ntechniques; and\nreporting.\nAUDIT FINDINGS\n8.235 Mandate. The current job description for the Supervisor of Internal Audit states\nthat he is \"responsible for developing and implementing an independent proga\nram for appraising the operation and administration of the Ministry as a service^BJ\nmanagement and executive and to make appropriate recommendations for\nimproving programs, policies, systems and procedures.\" However, the 197a\nAnnual Report limits the objective of the Ministry's Internal Audit team to\nevaluating the standards and administration of the Ministry's programs. Th^B\nrestriction reflects the objectives for Internal Audit as contained in a letter dated\nAugust 9,1976 which introduced the Internal Audit Group to its new responsibM\nlities.\n8.236 Reporting relationships. The Internal Audit Group reports to the Comptroll^B\nHowever, the Deputy Minister has advised the head of Internal Audit that he\nshould feel free to approach him directly concerning significant audit observS\ntions. We were told, however, that this informal reporting channel has not been\nused during the past year.\n SECTION 8, COMPREHENSIVE AUDIT       87\n8.237 During our review of the organization of Internal Audit and its reporting arrangements, it became clear that the Group was not being kept adequately informed of\ndevelopments within the Ministry. For example, Internal Audit was not aware of\ncomputer developments nor was it aware of certain consultants' reviews, internal reports and studies monitoring the processing of accounting entries. The\nJanuary and June 1980 audit reports of the Comptroller General on Income\nAssistance were received late and the Group audited a District Office without\nknowing that it was about to be split into two offices. The head of Internal Audit is\nnot a member of any committee nor does he attend management or systems\nmeetings.\n8.238 Although increased involvement and improved communication is possible\nunder existing organizational arrangements, the Ministry is considering the\nformation of an Audit Committee. We support its formation. Although the audit\nfunction would be guided by this Committee, the head of Internal Audit should\nnevertheless report directly to the Deputy Minister.\n8.239 Audit planning. A major task facing the head of Internal Audit is that of planning\nadequate audit coverage. Audit planning should ensure that all activities of the\nMinistry are identified, potential audit areas are ranked in order of priority, and\nI that appropriate audit objectives are determined for each area chosen for audit.\nIn a large, complex organization such as the Ministry, it will be necessary to\nsubdivide the audit responsibility into manageable \"audit units\". An audit unit is\nan assignment of manageable size, but of such scope, that if audited with due\ncare, will produce meaningful information for management. The ranking of\npotential audit units should be based on materiality, importance to effective\nmanagement, the degree of risk associated with different areas and opportunities\nfor improvement. Other criteria to consider include reorganization and major\nchanges in systems and key personnel.\n8.240 It is important to look at the entire audit unit from a functional, organizational\nand program viewpoint.\n8.241 Staffing. A profile of the Internal Audit Group shows that its staff have had some\nformal accounting training and auditing experience and that their knowledge of\nthe Ministry's operations has been gained mainly through working in the Internal\nAudit Group. Such personnel usually need about one year to gain enough\nexperience to carry out the existing audit program in District Offices. It will be\nnecessary over time to supplement current manpower resources and to provide\nguidance and direction in order for the Group to assume increased responsibility. Once the Group has determined and confirmed its audit objectives, and\nestablished audit scope and techniques, it will be able to determine what\nmanpower resources are appropriate to carrying out these tasks.\n\u2022 3.242 Systems-based auditing. The Internal Audit Group has not as yet used a valuable\nI audit technique known as \"systems-based auditing\". This technique can help to\n 88        REPORT OF THE AUDITOR GENERAL\nT\nincrease the effectiveness of Internal Audit as a key component of the Ministry's\ngeneral system of financial management and control. This type of auditing is\ndesigned to evaluate how accounting controls ensure that transactions are beinjB\nproperly accounted for.\n8.243 Other audit techniques evaluate only the accounting results. However, properly\napplied systems-based audit techniques allow the auditor to make recommend]H\ntions designed to avoid errors before they occur. Therefore, this technique is a\nmore effective approach than an after-the-fact audit of individual transactional\n8.244 Other audit techniques. The Internal Audit Group has thus far not used certain\nother specialized audit techniques that complement the systems-based audw\napproach. They enable the auditor to carry out certain tests to determine thw\nextent and impact of apparent systems' weaknesses. These techniques, such as\nstatistical sampling and internal control questionnaires, provide an objective\nbasis for carrying out the audit work and forming a general audit assessment. Nor\nhas the Group done work in the field of electronic data processing, either\nthrough auditing computer systems and data processing facilities, or by using\ncomputer-assisted auditing techniques.\n8.245 Reporting. Audit reports can take as long as two to four months to release and a\nfurther two to three months to clear. Follow-up procedures are in force and\nreminder notices are frequently required to elicit replies on reported audit\nobservations. Audit reports deal with departures from procedures as set out in\nmanuals. Frequently such departures are ultimately sanctioned under the discretionary authority of the Regional Manager. Audits result in similar observation\nfor each District Office and reports do not attempt to identify causal factor^B\nSUMMARY\n8.246 Internal Audit is meeting management's original expectations and the consensus\nwithin the Ministry is that the Internal Audit Group has been performing adequately. However, management acknowledges the need for Internal Audit to\nplay a more effective part in the managerial control system. Our audit confirms\nthe need to expand the scope of Internal Audit's activities and to establish\nprocedures and techniques that are appropriate to such an expanded role.\nUntil this is accomplished, our Office will be able to place only limited reliance\non the work of Internal Audit when we define the scope of our own audit work.\n8.247 To ensure that Internal Audit plays an effective part in the managerial control\nsystems, its role should be expanded to enable it to independently appraise the\nfinancial function as well as management and operating control systems in th\u00a7\nMinistry.\n8.248 The Internal Audit Group should report directly to the Deputy Minister to ensure\n SECTION 8, COMPREHENSIVE AUDIT\n89\nindependence and adequate, direct communication.\n8.249 The Audit Committee now under consideration should be established and\nshould be given sufficient scope and authority to establish appropriate manpower resources, to provide operational direction and to endorse the independent\nstatus of internal audit.\n8.250 To ensure that appropriate audit coverage is provided for, an audit plan should\nbe developed and documented for approval by the Audit Committee. The plan\nwould include:\n\u2022 a long-term plan that divides the Ministry into manageable audit units to\nensure audit coverage of all important areas;\n\u2022 an assessment of potential audits according to criteria based on materiality,\nimportance, degree of risk and opportunity for improvement;\n\u2022 the audit objectives and scope for each audit unit;\n\u2022 staff training and recruiting objectives; and\n\u2022 an annual schedule and related work plan.\n8.251 The level, quantity and mix of staff resources in the Internal Audit Group, should\nbe reviewed in light of the Ministry's audit needs and efforts should be made to\naugment staff resources where appropriate.\n8.252 In order to ensure that Internal Audit can provide effective audit coverage,\nsystems-based audit techniques and supporting procedures should be progressively introduced.\nOBSERVATIONS ARISING FROM AUDIT OF THE PUBLIC ACCOUNTS\nINTRODUCTION\n8.253 As part of the Comprehensive Audit of the Ministry, our Office tested enough\n| transactions for us to be able to express an opinion on the fairness of the financial\nstatements of the Province for the year ended March 31, 1980. We refer to this\nportion of our audit as \"attest work\". The attest audit was done in two sta'^s. In\nthe first stage, we studied and evaluated the controls within the Mir,;,try's\naccounting system for administrative expenditures to determine its reliability. In\nstage two, we carried out tests and other procedures considered necessary to\nconfirm our evaluation and opinion.\nSYSTEM OF CONTROLS\n8.254 The first stage was carried out in conjunction with other elements of our Comprehensive Audit. It enabled us to thoroughly understand the controls within the\nMinistry that ensure both that funds are reliably accounted for, and that the\ncollection and expenditure of funds are properly controlled. We have incorporated our comments on the system of internal control in the segment on Financial\n 90        REPORT OF THE AUDITOR GENERAL\n71\nManagement and Control (paragraphs 8.115 to 8.133).\n.255 In the second stage, our Office carried out tests and other substantive work on M\nrange of transactions including payroll. We selected these transactions as part ol\nthe government-wide sample. As noted, the results of these tests support 6m\nobservations made in paragraphs 8.115 to 8.133. Although the audit team founil\nthat the Ministry did have many basic financial and accounting controls in place!\nour tests indicated that controls could and should be improved. For example!\n\u2022 Time sheets supporting payments made to hourly wage staff at WoodlandBJ\na government-operated institution for retarded children and adults, are n<S\nauthorized by the appropriate supervisors. As a result, employees could be\npaid for hours not worked or for unnecessary overtime.\n\u2022 An invoice from the Medical Services Plan of British Columbia foa\n$94,277.68 for March 1980 was not paid until six months later, indicating\nthat the accounts payable filing system should be strenghtened.\n\u2022 The Ministry does not retain supporting records for automatic journaj\nentries which transfer substantial amounts of payroll expenditures from the\nMinistry's Vote to the Ministry of Finance's \"contingency\" Vote. Because!\nthis information is not retained by the Ministry of Human Resources it is\npossible that the initial journal entries have not been reviewed to ensiffl\nthe accuracy of the amount transferred.\n\u2022 Our audit revealed an instance in which the Ministry had been billed and\nhad paid for rented space that it had not leased. The Ministry staff are tryifS\nto improve controls in this area. While the amount involved in the abova\npayment was not material, this observation does indicate some deficienaB\nin the review and control of rental billings.\n\u2022 Management at appropriate senior levels has little involvement with the\nGAIN Supplementary Benefits to OAS\/GIS\/SPA recipients. Although the;\nMinistry does use the federal agency's computer system extensively]\u2122\nshould still ensure that those responsible for administering the provincim\nprogram become involved in it to some extent.\n SECTION 8, COMPREHENSIVE AUDIT       91\nSummary of Recommendations and Ministry's Comments\nRecommendations\n8.113 As part of its efforts to improve management control, the Ministry should develop\nclearly defined performance indicators\nand work expectations, in terms of both\nquality and quantity. These should then be\nused as the basis for accumulating and reporting performance information at all\nlevels in the Ministry in order to allow management to act promptly when warranted\nand to improve the allocation of resources.\n8.114 The Ministry should ensure that it reports\nperformance information to the Legislative\nAssembly which indicates the extent to\nwhich it has been successful in delivering\nan efficient program. The information\nshould include data on the cost-\neffectiveness of various alternative\nmethods of delivering the program.\nFINANCIAL MANAGEMENT AND CONTROL\n3.132 In order to ensure that it realizes the full\nbenefits of a strong financial management\nand control function the Ministry should:\n\u2022 review the number and level of personnel in the financial function to ensure that it is strong enough to effectively carry out its responsibilities;\nand\n\u2022 ensure that it prepares a comprehensive operational plan detailing the\ngoals and objectives, activities, timing, performance criteria and priorities for the Comptroller's Office.\nMinistry's Comments\nREPORTING OF PERFORMANCE AND\nACCOUNTABILITY INFORMATION\nAgreed. The Ministry is reorganizing headquarters staff to establish a Strategic Planning branch.\nOne of the core functions of this\nbranch will be to assist management of the Ministry by providing\nthe necessary leadership and technical support to develop key indicators of the efficiency, effectiveness and economy of Ministry\nprograms and operations.\nAgreed. The Ministry will revise\nthe format and content of the 1981\nAnnual Report to permit this.\nAgreed. Work is underway to develop a comprehensive operational plan for the Comptroller's\nOffice. The Ministry also recognizes the need to upgrade the\nquality and quantity of financial\npersonnel. A review of the organization and staffing of the Comptroller's Office is underway; however, it should be noted that the\nMinistry has experienced some\nconsiderable difficulty in securing\nqualified accounting staff given\nthe current Government-wide\nclassification plan.\n 92        REPORT OF THE AUDITOR GENERAL\nRecommendations\nMinistry's Comments\n8.133    The Comptroller's Office should:\n\u2022 develop its I ines of functional respon-\nsibility and provide more guidance\nand advice to line managers in order\nto help them achieve the necessary\nlevels of control over program expenditures in a flexible, efficient\nmanner;\n\u2022 ensure that it further develops planning, budgeting and reporting systems to make them more useful in\nmeasuring performance and in allocating resources;\n\u2022 improve systems and procedures designed to ensure that revenues and\nexpenditures and assets in the Ministry's care are being adequately safeguarded; and\n\u2022 ensure that all financial and control\nimplications of new systems such as\ncomputer-based systems, have been\ntaken into account and that all key\nsystems and procedures are adequately documented.\nCONTROLS IN THE INCOME ASSISTANCE SYSTEM\n8.153    In order to improve the supervisory function, the Ministry should:\n\u2022 clarify the role and authority of District Supervisors;\n\u2022 establish standards for expected performance;\n\u2022 monitor performance against the indicators established to improve\naccountability and to ensure that\nthese are considered when Supervisors are being appraised; and\n\u2022 continue to provide more and better\ntraining at the supervisory level.\n8.166    The Ministry should continue its efforts to\naugment its training program. Particular\nAgreed. These are ongoing actij\nities within the Comptroller^\nOffice.\nAgreed. A job content and traB\ning profile review for supervise\nis underway. As part of this process ail District Supervisors have\nreceived an updated statement of\ntheir role and authority. Also, a\nthree-year plan to address supervisory training needs has been developed.\nAgreed. Management reports relating to staff training activities are\n SECTION c\n, COMPREHENSIVE AUDIT       93\nRecom\nmendations\nMinistry's Comments\nemphasis should be given to:\nbeing revised.\n\u2022   improving the process for identifying\ntraining needs;\n\u2022   ensuring effective coordination of\ntraining efforts;\n\u2022   evaluating and reporting the results\nof training; and\n\u2022   accumulating and reporting informa\ntion showing all training costs.\n8.172\nThe Ministry should re-examine the extent\nto which it has made use of accounting and\ninternal controls at the District Office level\nand should ensure that those types of controls are consistently used whenever possible.\nAgreed.\n8.173\nThe Ministry should review its procedures\nAgreed. The matter of confiden\nfor maintaining physical security over\ntiality and security of files is seen\ndocuments to ensure that only authorized\nas a high priority within the\npersons have access to them.\nMinistry.\n8.176\nIn conjunction with developing perform\nAgreed. Technical assistance to\nance measurement indicators and criteria,\ndevelop quality control plans will\nthe Ministry should consider implementing\nbe provided by the new Strategic\na quality control function to provide mana\nPlanning branch noted above in\ngers with reliable, current information\nthe Ministry's response to recom\nabout how efficiently and accurately\nmendation 8.113.\nclaimant files are processed.\n8.181\nIn order to realize the potential benefits of\nthe inspection function, the Ministry\nshould give guidance to staff in identifying\ncases which they should refer to the Inspection Group.\nAgreed.\nIDENTIFIED OVERPAYMENT AND ERRORS -\nCONTROL AND COLLECTION\n8.196\nResponsibility for dealing with cases of\noverpayment should be clearly established\nfor individuals and groups within the\nMinistry. The Ministry must also provide\nsufficient instruction to staff to ensure that\noverpayments   are   identified    and   are\nAgreed.\n\\\t\n 94        REPORT OF THE AUDITOR GENERAL\nRecommendations\nMinistry's Comments\ndisposed of appropriately and consistently\nfrom district to district.\n.197 In order to ensure that the Ministry meets\nadequate standards of accounting and control for identified overpayments, it should\nestablish an overpayment and collection\nsystem to ensure that identified overpayments are recorded, properly controlled\nand accounted for, and that write-offs are\nproperly authorized. This system should be\nincorporated into the overall performance\ninformation system and the information\nproduced should be reported promptly to\nappropriate levels of management.\nAgreed.\nCOST-SHARING\n8.210 To ensure that the Ministry realizes as\nmuch as it can from cost-sharing agreements, it should direct its attention toward:\n\u2022 ensuring that cost-sharing responsibilities are documented and understood within the Ministry, and that\nother ministries also understand their\ncost-sharing responsibifities;\n\u2022 refining assessment criteria and reporting procedures used to monitor\nperformance;\n\u2022 allocating enough staff to ensure that\nclaims for cost-sharing are complete\nand up to date; and\n\u2022 ensuring that all operating systems\nwork toward supporting optimum\ncost-sharing.\nELECTRONIC DATA PROCESSING\n8.231 To ensure that controls have been\nadequately provided for in the Ministry's\nnew On-line Version II system, the Ministry\nshould:\n\u2022 review the system to ensure that all\nnecessary control criteria have been\nAgreed. The Ministry has allocated three permanent staff posl\ntions and another four temporary\nstaff to cost-sharing activitiesBB\nAgreed. The Ministry has\nrecognized this deficiency and\nplans to conduct a formal review\nas recommended. The Minffl\nwill also develop a project\nadministration manual to provide\nu\n SECTION 8, COMPREHENSIVE AUDIT       95\nRecommendations\nMinistry's Comments\nmet before fully implementing it; and\n\u2022 adopt clear control standards to be\nadhered to in any future computer\nsystem developments.\n1.232 To ensure that due regard to economy is\nachieved in future development projects,\nthe Ministry should ensure that it has\nsufficient qualified personnel before\nundertaking such projects, that a suitable\norganization structure is established\n(including provision for user and\nfunctional direction), and that\nresponsibilities of all key project\nparticipants are clearly articulated and\nunderstood.\n|233 The Ministry should adopt a clear set of\ngenerally acceptable electronic data\nprocessing system development standards\nincluding provisions for:\n\u2022 preparing complete cost benefit\nanalyses during the planning stage;\n\u2022 properly monitoring costs and\ntechnical specifications;\n\u2022 reporting in a complete and useful\nformat information to senior\nmanagement;\n\u2022 establishing user-acceptance\ncriteria;\n\u2022 evaluating the system before and\nafter implementation; and\n\u2022 ensuring that controls provided for in\nand over the operating systems are\nadequate.\ncontrol standards and guidance\nfor Ministry staff involved in\ncomputer systems development.\nAgreed. The organization and\nstaffing levels relating to Ministry\ncomputer systems development\nand operations have been revised\nto better ensure appropriate\nstaffing and controls (including\nprovision for independent quality\nassurance reviews and for user\nand functional direction) for all\nsuch projects.\nAgreed. Such standards will be\nset out in the project\nadministration manual noted\nabove.\nINTERNAL AUDIT\n8.247\nTo ensure that Internal Audit plays an\neffective part in the managerial control\nsystems, its role should be expanded to\nenable it to independently appraise the\nfinancial function as well as management\nand operating control systems in the\nMinistry.\nAgreed. The mandate,\norganization and staffing levels of\nthe Internal Audit Group have\nbeen revised to enable the Group\nto effectively perform this\nexpanded role.\n 96\nREPORT OF THE AUDITOR GENERAL\n7!\nRecommendations\nMinistry's Comments\n8.248 The Internal Audit Group should report\ndirectly to the Deputy Minister to ensure\nindependence and adequate, direct\ncommunication.\n8.249 The Audit Committee now under\nconsideration should be established and\nshould be given sufficient scope and\nauthority to establish appropriate\nmanpower resources, to provide\noperational direction and to endorse the\nindependent status of Internal Audit.\n8.250 To ensure that appropriate audit coverage\nis provided for, an audit plan should be\ndeveloped and documented for approval\nby the Audit Committee. The plan would\ninclude:\n\u2022 a long-term plan that divides the\nMinistry into manageable audit units\nto ensure audit coverage of all\nimportant areas;\n\u2022 an assessment of potential audits\naccording to criteria based on materiality, importance, degree of risk and\nopportunity for improvement;\nimprovement;\n\u2022 the audit objectives and scope for\neach audit unit;\n\u2022 staff training and recruiting\nobjectives; and\n\u2022 an annual schedule and related work\nplan.\n8.251 The level, quantity and mix of staff\nresources in the Internal Audit Group,\nshould be reviewed in light of the\nMinistry's audit needs and efforts should be\nmade to augment staff resources where\nappropriate.\nAgreed.  The Internal AudiS\nGroup now reports to the Office of\nthe Deputy Minister.\nAgreed. The Audit Committed\nhas been established.\nAgreed. A long-range audit pla\u2122\nwill  be developed.  When\ncompleted this plan will be\npresented for approval by tha\nAudit Committee.\nAgreed. The Ministry has\nrecently completed a review of the\norganization and staffing of the\nInternal Audit Group.\nRecruitment efforts are now\nunderway to augment existiM\nstaff resources, with particular\nattention being given to the\nselection of qualified staff with\nextensive    experience   in\n SECTION 8, COMPREHENSIVE AUDIT       97\nRecommendations\nMinistry's Comments\n8.252 In order to ensure that Internal Audit can\nprovide effective audit coverage,\nsystems-based audit techniques and\nsupporting procedures should be\nprogressively introduced.\nsystems-based and related audit\ntechniques.\nAgreed. As appropriately\nqualified staff are recruited more\nadvanced audit techniques will be\nprogressively introduced.\n  PART 3\nFINANCIAL MANAGEMENT\nAND CONTROL AUDITS\n  PART 3,        101\nTable of Contents\nPART 3:\n9. Financial Management and Control Audits\nIntroduction   103\nMinistry of Education   105\nReport Precis   105\nRecommendations and Ministry's Comments   106\nMinistry of Finance  115\nReport Precis   115\nRecommendations and Ministry's Comments   116\nMinistry of Human Resources  122\nReport Precis   122\nRecommendations and Ministry's Comments   123\nMinistry of Lands, Parks and Housing   128\nReport Precis   128\nRecommendations and Ministry's Comments   129\n  If\t\nSECTION 9, FINANCIAL MANAGEMENT AND CONTROL AUDITS        103\nFinancial Management and Control Audits\nIntroduction\n9.1 This year my Office carried out a limited number of reviews of financial management and control in several ministries. This work was launched to lay the\nfoundation for conducting similar audits in other ministries at a future date. In\naddition, we wanted to further develop the systems-based audit approach which\nthis Office is already using. Finally, we wished to help prepare key members of\nmy senior staff to become involved in the comprehensive audit process previously described.\n9.2 The audits reported on here were conducted under section 8, of the Auditor\nGeneral Act. In essence, they represent only one aspect of comprehensive\nauditing: that which examines financial management and control. In Part 2,\nparagraphs 12.26 and 12.27 of my 1979 Report to the Legislative Assembly, I\ncommented on this form of audit as follows:\n\"The provisions in section 8(1) of the Auditor General Act require that I call\nattention to anything arising from my examination which in my opinion\nshould be brought to the attention of the Legislative Assembly. These provisions include instances in which systems of internal control and accounting\nhave been insufficient and they constitute the core area of the \"F\" in FRAME-\nthat is, financial controls.\nMy Reports this year and last contain examples of certain types of observations\nand recommendations arising under section 8(1) of the Auditor General Act.\nThe comments and recommendations thus far reported in this area arose from\nobservations made by my staff while examining the Government's financial\nstatements. These evaluations focused, for the most part, on certain types of\nprocessing and accounting controls that we would normally expect to find in\neach system examined; for example, segregation of duties and batch processing methods. However, if these types of controls are provided for (and\nreliably adhered to in systems) they do not necessarily result in satisfactory\nfinancial control. This is because contemporary accepted definitions of internal control point to the important role that planning, budgeting and reporting\nsystems have to play in achieving an adequate level of control. Accordingly,\nexaminations of control systems in comprehensive audits will continue the\npattern established thus far by my Office for basic internal controls and will\nextend to include such control features as the organization of the financial\nfunction, financial reporting and budgetary control systems and internal\naudit.\"\n9.3 We carried out financial management and control audits in the Ministries of\nEducation, Finance, and Lands, Parks and Housing. We also conducted similar\nwork in the Ministry of Human Resources, as part of our comprehensive audit\n 104        REPORT OF THE AUDITOR GENERAL\nwork there. We chose these Ministries because of their size and the broad rang J\nof government activities which they collectively carry out.\n9.4 Each of the financial management and control audits carried out in the fotil\nMinistries addressed the following areas:\nrole, organization and staffing of the financial function;\nplanning, budgeting and budgetary controls;\nfinancial accounting and reporting systems;\ncontrols over assets, liabilities, revenues and expenditures; and\ninternal audit.\n1\n9.5 Part of our work entailed providing detailed material to management that supported the audit team's observations, along with our recommendations for\ncorrective action. Most of our observations and recommendations have focused\non weaknesses or deficiencies that lie within the authority and responsibility of\nindividual ministries to remedy. In certain cases, however, our observations^\nministries are linked to areas for which central agencies of the Government haval\nresponsibility, exercise guidance, direction, or perform certain control func!\ntions.\n9.6 Accordingly, we have not dealt extensively with these latter areas, since we:\nrecognize that in some instances, the ministries and central agencies will have^\nconsult and work together to make the improvements that we have reco^B\nmended and which we feel are essential to achieving an adequate level off\nfinancial management and control.\n9.7 Our audit work has revealed certain recurring deficiencies in financial management and control. These have appeared in a number of ministries and in thdS\nareas in which the central agencies play either a functional or a direct role. As my\nOffice carries out more financial control audits in individual ministries, we wffl\ncontinue to assess the potential for conducting government-wide examinations\nin these areas. This approach was described in paragraph 12.54 of my 19^\nReport to the Legislative Assembly.\n9.8 As we stated earlier, our Report contains recommendations for corrective actitffl\nwhere we observed deficiencies. These recommendations are, for the most pan\nbroad in nature. They recognize that it is management's prerogative to chooS\nthe most appropriate means of carrying out the intent of our recommendation\u2122\n9.9 In each of the four Ministries where we conducted a financial management and\ncontrol audit, we had the full cooperation of its executive and staff. Th^BJ\ncooperation greatly facilitated our work and added to its potential for improviBM\nfinancial management and control.\n9.10 The remainder of this Section of my Report briefly summarizes our majaB\nobservations and presents all of our recommendations for improving financ^\nii\n SECTION 9, FINANCIAL MANAGEMENT AND CONTROL AUDITS        105\nmanagement and control in each Ministry. To the right of each recommendation, we have included the Ministry's response or comments.\nMinistry of Education\nREPORT PRECIS\n9.11 The Ministry of Education is established and administered in accordance with\nthe provisions of the School Act. At the time of our audit there were three\nprincipal departments within the Ministry: Schools, Post-Secondary, and Ministry Services. The Ministry's budget of approximately $1 billion is used to provide\nfunding for public schools education, post-secondary education at colleges and\n^* institutes, the Teachers' Pensions Fund, independent schools, post-secondary\nstudents' aid and other related programs.\n9.12 Our audit of financial management and control in the Ministry of Education led\nus to the conclusion that financial management has, in the past, generally not\nplayed an important enough role in the management of the Ministry. This is\nbecause it has aimed more at the mechanics of administering budgets, arranging\ncapital financing, accounting and other financial matters. It has not emphasized\nits role in ensuring that management has the type of financial information it\nneeds and that the financial function can provide guidance and direction to\noperating personnel who have significant financial responsibilities.\n9.13 This situation may in part have been due to the fact that the Superintendent,\nFinancial Services, who was the Ministry's Senior Financial Officer (as designated by the Deputy Minister) did not report to the Deputy Minister. He was not a\nmember of the Executive Committee, and certain Ministry officials who were\nperforming financial functions did not report to him.\n9.14 Under this form of organization the financial management and control function\nwas not fulfilling its proper role. For example, staff were developing and operating budgeting and financial reporting systems with little or no consultation with\nthe Senior Financial Officer.\n9.15 The audit team concluded that the mandate of the Ministry's designated Senior\nFinancial Officer has not been strong enough to lend sufficient authority to his\nposition. Accordingly, this mandate has not allowed him to provide the scope of\nfinancial management which the Ministry should have in place.\n9.16 Our audit of financial management and control also concluded that there was\nconsiderable scope for improving the Ministry's systems of control, including\nplanning and budgeting, controls over assets and liabilities and reporting of\nfinancial information in order to achieve the level of financial control that we\nbelieve is needed in the Ministry.\n 106\nREPORT OF THE AUDITOR GENERAL\n9.17 Of particular importance was our observation that the Ministry should devoti\nconsiderable attention to ensuring that internal audit of the appropriate type and\namount is carried out. We believe that the Ministry could derive much bene\u2122\nfrom internal audit. In particular, a strong internal audit function could provjcfl\nmanagement with the assurance it needs as to the adequacy of its programs and\nmanagement and control systems throughout the Ministry.\n9.18 During our audit and before we had completed our field work, we noted that8\nmanagement had begun to reorganize the financial function and to improve a\nnumber of areas of financial management and control. For example, the MinisgH\nhas recently made considerable progress in improving its budgetary and finaS\ncial management reporting systems. We also noted that increasing attention was\nbeing paid to adopting control mechanisms, such as audits, over certain of iS\nmajor program expenditures. As such, our recommendations are aimed at\nassisting management in its efforts to improve both its financial management and!\ncontrol function and its systems, so that these can achieve their intended purposaj\n- to provide management with the support it needs.\nRecommendations and Ministry's Comments\nRecommendations\nMinistry's Comments\nROLE, FUNCTION AND REPORTING\nRELATIONSHIPS OF THE SENIOR FINANCIAL\nOFFICER\n9.19 In order to ensure that financial\nmanagement and control can provide the\nnecessary support to management, the\nMinistry should ensure that its role is\nclearly defined and communicated to\npersonnel at all levels. The role should\nprovide for the involvement of the Senior\nFinancial Officer in all decisions which\nhave significant financial impact or involve\nfinancial systems or procedures.\n9.20    The Ministry's designated Senior Financial\nOfficer should report directly to the Deputy\nThe Ministry will ensure that all\npersonnel are reminded of the role\nof financial management and control. This will occur through explanation of the new organizational structure of the Ministry cuS\nrently being implemented,\nthrough further training in the new\nfinancial reporting system developed by the Ministry, and\nthrough the introduction of zero-\nbased budgeting for the next\nbudgetary cycle. The Senior\nFinancial Officer will be involved\nin all decisions having significant\nfinancial impact or involving\nfinancial systems and procedures.\nThe Assistant Deputy Minister -\nEducational Finance is now the\n SECTION 9, FINANCIAL MANAGEMENT AND CONTROL AUDITS        107\nRecorr\nmendations\nMinistry's Comments\nMinister.\ndesignated Senior Financial Officer, reports directly to the Deputy\nMinister and is a member of the\nPolicy and Resource Allocation\nCommittee of the Ministry (the\n\"Executive\" Committee).\n9.21\nThe Senior Financial Officer should be a\nSee Ministry's Comments on Re\nmember of the Ministry's Executive\ncommendation 9.20.\nCommittee.\nFUNCTIONALAND DIRECT RELATIONSHIPS\n9.22\nThe responsibilities and reporting relation\nResponsibilities and reporting re\nships of financial officers who report\nlationships have been examined\ndirectly to the Senior Financial Officer\nand re-developed as part of the\nshould be re-examined. Processes should\nnew organization.\nbe developed to ensure that these reporting\nrelationships are appropriately established\nand operate effectively.\n9.23\nIn order to ensure that the Senior Financial\nAll financial and other officers\nOfficer can perform his function effective\nperforming financial functions\nly, the Ministry should establish and com\nwill now report regularly to the\nmunicate a policy providing for functional\nAssistant Deputy Minister - Edu\ndirection and guidance from the Senior\ncational Finance, whose staff will\nFinancial Officer. This would require all\nalso monitor monthly financial re\nfinancial and other officers performing\nports from each responsibility\nfinancial functions to report regularly to the\ncentre. Quarterly variance reports\nSenior Financial Officer and to periodical\nwill be filed by each responsibility\nly meet with him on financial management\ncentre manager with his Assistant\nand control matters.\nDeputy Minister and the Senior\nFinancial Officer. A major meeting to review financial operation\nof each area of the Ministry will be\nheld on an annual basis, in addition to meetings to develop\nbudgets or review proposed policies.\nSTAFFING AND TRAINING\n:    9.24\nThe Ministry should assess the training\nThe Ministry intends to complete\nneeds of its financial staff to ensure that all\nits reorganization by ensuring that\nhave been accurately identified. As part of\nappropriate assignments of per\nthis process the Ministry should compare\nsonnel are made, competitions\n 108\nREPORT OF THE AUDITOR GENERAL\nRecommendations\nMinistry's Comments\nits job needs in the financial area with its\navailable manpower both in terms of numbers of staff and their qualifications.\n9.25 The Ministry should implement a policy of\ntraining and career development for its\nfinancial personnel to ensure that identified training and career development\nneeds are met.\n9.26 The duties of the Ministry's financial officers should be rotated periodically as a\nmeans of ensuring appropriate skills development.\nCOMMUNICATIONS\n9.27 The Ministry should place further emphasis\non completing a comprehensive financial\nand accounting manual to ensure that\nfinancial policies and procedures are available in a useful format to all financial officers and responsibility centre managers.\nThe manual should be updated whenever\npolicies or procedures change and be reviewed annually by the Senior Financial\nOfficer.\nMINISTRY BUDGETARY PROCEDURES\n9.28 In order to strengthen the budgetary control process, the Ministry should define the\nspecific responsibilities of the responsibility centre managers for preparing budgets.\nGuidelines should state the extent to which\nFinancial Services is expected to participate in strategic planning, and should define the kinds of procedures and financial\ncompleted where appropriate\nand training of personnel completed. Further, as new accouM\ning and auditing systems are developed and implemented, iw\nstaff will be involved in training\nSee Ministry's Comments on Recommendation 9.24.\nRotation of the Ministry's financial\nofficers will be considered and,\nwhere possible, undertaken,\nalthough such flexibility is notirrs\nmediately obvious because of\ngeneral government policies and\nagreements surrounding the reaS\nsignment and deployment of personnel.\nSuch a manual is currently under\ndevelopment and release of theS\nitial portions will be completed by\nMarch 31 with ongoing work to be\ndone throughout the year.\nImplementation of zero-based\nbudgeting will establish\ndocumented procedures of this\nkind.\n SECTION 9, FINANCIAL MANAGEMENT AND CONTROL AUDITS        109\n| Recorr\nmendations\nMinistry's Comments\nguidance that it should provide. The Ministry should indicate to what degree Financial Services should participate in the review functions.\n.  9.29\nFinancial Services should have both re\nSee Ministry's Comments on Re\nsponsibility for evaluating budgets and the\ncommendation 9.28.\nauthority to require responsibility centre\nmanagers to provide back-up information\nfor items included in their budgets.\n9.30\nProvision should be made for formal\nA formal re-allocation procedure\napproval of all major budget changes or\nis almost completed which will\nreallocations and adjustments during the\nprovide clear documentation of\nyear and these in turn should be reviewed\nall re-allocations, with advisory\nand approved by the Financial Services\ninformation to all senior manage\nGroup.\nment and the Department of Educational Finance.\n9.31\nThe Ministry should establish a\nA procedure has been completed\ndocumented policy for dealing with\nand is being implemented.\nvariances. Such a policy should include\nconsideration of:\n\u2022   the limits above which variances\nhave to be explained;\n\u2022   who these explanations should be\ndirected to;\n\u2022   the requirements for documenting\nany remedial action;\n\u2022   the extent of review required by\nFinancial Services; and\n\u2022   the correlation of financial variances\nwith operating information and sta\ntistics.\n9.32\nGuidelines for the new commitment sys\nGuidelines for use of commit\ntem should be documented and all indi\nments in the financial reporting\nviduals who are involved in recording\nsystem have been completed and\ncommitments should be provided with an\ntraining is under way.\nappropriate amount of training in this area.\n': 9.33\nTo ensure that the impact of new programs\nNew processes for ensuring the in\nis fully assessed, program managers and\nvolvement of officials of the De\nplanning officers should coordinate their\npartment of Educational Finance\nactivities with Financial Services. The\nare built into the policy develop-\n 110\nREPORT OF THE AUDITOR GENERAL\n1\nRecommendations\nMinistry's Comments\nSenior Financial Officer should review and\nchallenge programs being developed as to\ntheir financial impact on the Ministry.\nBUDGETS SUBMITTED BY SCHOOL DISTRICTS\n9.34 To allow the Ministry to determine the cost\nof each program and how efficiently it is\nrun, School District budgets should be prepared on a program basis.\n9.35 Control over special program funds should\nbe improved. The Ministry should review\nuse of these funds at the School District\nlevel to ensure that funds are used only for\nintended purposes.\n9.36 The Senior Financial Officer should be actively involved in the current review of the\nSchool Districts' budgeting system to ensure that all matters of financial significance are considered.\n9.37 The Senior Financial Officer should be involved in the Ministry's challenge process\nof the budgets submitted by the School\nDistricts.\nBUDGETSSUBMITTED BY POST-SECONDARY\nINSTITUTIONS\n9.38    Post-Secondary Finance should have responsibility for budgets for Post-Secondary\nInstitutions.\nment committees of the MinistnJJ\nAll new policy proposals are examined for their financial impact.\nPrograms are examined for them\nfinancial impact as MinistrS\nbudgets are developed. Again\nEducational Finance officials are\ninvolved.\nA project is in its early definitio\u2122\nstage to revise school distriM\nbudget reports to the Ministry on a\nprogram basis. The Assistant Deputy Minister \u2014 Educational Finance is involved.\nA full review over control and use\nof special program funds will be\nundertaken as soon as resources\nare available in the Finance Research area of the Education^\nFinance department.\nSee Ministry's Comments on Recommendation 9.34.\nAt present budgets are reviewed\nrather than challenged. A Management Indicators Report w\neach school district indicates\nvariances from provincial norms.\nAll majors anomalies are followed\nup by officials of the Schools\nDepartment and the Department\nof Educational Finance.\nBudgets for post-secondary inM\ntutions are developed at the local\nlevel, examined by the Manage-\n SECTION 9, FINANCIAL MANAGEMENT AND CONTROL AUDITS        111\nRecommendations\nMinistry's Comments\n9.39 The Senior Financial Officer should be involved in and effectively challenge the\nbudgets submitted by the Post-Secondary\nInstitutions.\n- 9.40    In order to improve control over funds\nissued for continuing adult education purposes to School Districts, the Ministry\nshould review the use of these funds at the\nSchool District level with special emphasis\non determining that they have been used\nonly for intended purposes.\n- 9.41    The Ministry should request the Post-\nSecondary Institutions to prepare long-\nterm operating plans to assist it in providing\nfor sound, long-term planning for the most\nappropriate use of available funding for\nColleges and Institutes.\nFINANCIAL MANAGEMENT REPORTING\n] 9.42 In order to enhance the benefit which can\nbe obtained from the Ministry's recently\ndeveloped financial management report-\nment Services section of the Post-\nSecondary Department in conjunction with staff of Post-\nSecondary Finance, presented to\nthe statutory Councils who make\nfurther recommendations, and\nbuilt into the Post-Secondary Vote\nwhich is managed by the Post-\nSecondary Department. The further role of the staff of Post-\nSecondary Finance is to ensure\nthat expenditures are properly\naccounted for and that operational audits of post-secondary institutions are undertaken. The Senior\nFinancial Officer will be involved\nin the review of al I budgets as sub-\nmitted and incorporated in the\nMinistry's Estimates.\nSee Ministry's Comments on Recommendation 9.38.\nThe staff of Continuing Education\nin the Post-Secondary Department\nwill continue to make such reviews.\nLong-term operating and capital\nplanning processes are under development.\nOnce the basic implementation of\nthe financial management reporting system is complete, our next\n 112        REPORT OF THE AUDITOR GENERAL\nI\nRecommendations\nMinistry's Comments\ning system, the Ministry should review the\nsystem to determine the feasibility of incorporating Ministry revenues, operating performance and utilization measurement\ndata, and key aspects or control account\ndata from the subsidiary accounting systems in the Ministry.\n9.43 The Senior Financial Officer or his designate should periodically review the subsidiary accounting systems operated in the\nMinistry to ensure they embody adequate\ncontrols. Any relevant data from those systems that may be useful to senior financial\nmanagers should be included in regular\nreports to the Senior Financial Officer.\n9.44 The Ministry should prepare cost\/benefit\nanalyses before it develops any major, new\nsystems or systems modifications to ensure\nthat the cost is commensurate with anticipated benefits.\nDOCUMENTATION OF REVENUE AND\nEXPENDITURE SYSTEMS\n9.45 All expenditure and revenue systems\nshould be documented and applicable internal controls reviewed to ensure that they\nare adequate.\nACCOUNTING CONTROLS\n9.46 To ensure that the Ministry exercises adequate accounting control over all sums\ncharged to Vote #56, Grants to Reduce\nLocal School Taxes, and amounts credited\nto Vote #60, Recovery of Rural District\nTaxes, it should clarify its responsibility\nand accountability for these expenditures\nand recoveries, and obtain adequate sup-\nmajor activity must be the implementation of zero-based\nbudgeting. Once this is complete,\nfurther extensions of the reporting\nsystem will be considered.\nThis work will be undertaken by\nthe Directors of Accounting and\nInternal Audit in the MinistjS\nComptroller's branch, once these\npositions are filled.\nWhile costs are relatively straightforward to determine, benefits\u2122\neducational programs are often intrinsic and subjective, rather than\nfinancial or objective. Nonetheless, cost-benefit analysis is part of\nthe consideration of every systerS\nproposal, particularly where management or data processing systems are under consideration.BJ\nThe new officers in the Ministry\nComptroller's branch will undertake this work.\nThe management of these activities rests with the Ministry of Finance, although the items appear\nin the estimates of the Ministry of\nEducation. This anomalous situation will be discussed with the\nMinistry of Finance to see whether\nwe should assume responsibiJM\n SECTION 9, FINANCIAL MANAGEMENT AND CONTROL AUDITS\n113\nporting information for these expenditures\nand recoveries.\n.. 9.47 The Ministry should ensure that it has\nenough supporting information to verify\nthe accuracy of the amounts charged to\nVote #59, Teachers' Pensions Fund.\nn Recommendations\nMinistry's Comments\n9.48 To ensure the adequacy of controls over\nthe Student Aid Program, the Financial Services Group should review the system used\nto approve and pay Post-Secondary student aid.\n9.49 To improve control over funds received\nfrom the Federal Government for French\nlanguage education programs, the Ministry\nshould provide more detailed accounting\nprocedures relating to these funds.\nI REVENUE CONTROLS\n9.50 Financial Services should identify all revenue sources and review related accounting controls including reports to ensure\nthat they are adequate and that responsibility for managing revenue is clearly\nassigned and consistently performed.\n: 9.51 Revenue budgets should be developed and\nregularly compared with actual revenue\nand collection. Any unusual fluctuations\nshould be investigated and appropriate\ncorrective action instituted promptly.\nRESPONSIBILITIES FOR CONTROL OVER ASSETS\nAND LIABILITIES\n| 9.52 The Ministry should establish policies and\nprocedures for controlling and accounting\nfor its assets. These should provide for\nassigning and documenting responsibili-\nand accountability as recommended.\nThe form of the annual statement\nfrom the Superannuation Commissioner indicating financial\nneeds in the Teachers' Pension\nfund Vote will be reviewed. The\nMinistry of Education does not\nhave management responsibility\nfor this Vote although it appears in\nour Estimates.\nThe systems used to pay Student\nAid will be reviewed annually by\nthe Senior Financial Officer and\nhis staff.\nAccounting procedures related to\nFrench language education programs will be documented.\nThe Ministry Comptroller's staff\nwill review revenue accounting\nprocedures and make necessary\nimprovements.\nSee Ministry's Comments on Recommendation 9.50.\nAssets management will be reviewed and new procedures implemented by the Director of Internal Audit, when this official is\n 114        REPORT OF THE AUDITOR GENERAL\nRecommendations\nMinistry's Comments\nappointed.\nSee Ministry's Comments on Ref\ncommendation 9.52.\nSee Ministry's Comments on Recommendation 9.52.\nSee Ministry's Comments on Recommendation 9.52.\nties for asset management, control and\ndocumentation and review of all systems in\nuse in the Ministry.\nACCOUNTING AND PHYSICAL CONTROLS IN\nASSET MANAGEMENT SYSTEMS\n9.53 The Financial Services Group should review and document all controls relating to\nassets owned by the Ministry in order to\nensure that controls are adequate for safeguarding these assets.\n9.54 All attractive and\/or valuable assets should\nbe listed and be subject to periodic physical counts. Accounting controls should be\nused to ensure the integrity of fixed asset\nrecords.\n9.55 Segregation of duties between physical\ncustody and record-keeping at all inventory locations shold be developed sufficiently to ensure that asset inventories are\nadequately safeguarded.\nMINISTRY INTERNAL AUDIT\n9.56 In order to provide for internal audit commensurate with its needs, the Ministry\nshould thoroughly review all its internal\naudit requirements. In consultation with\nthe Office of the Comptroller General it\nshould determine the manner in which its\nneeds in this important area can most efficiently be fulfilled.\n9.57 According to the results of its review of\ninternal audit, the Ministry should implement a comprehensive internal audit program with particular focus on the concerns\nof Ministry management and those of the\ncentral agencies.\nOPERATIONAL REVIEWS OF SCHOOL\nDISTRICTS, COLLEGES AND INSTITUTES\n9.58 The Ministry should consider auditing the       It is the Ministry's intention, when\nA new position, Director of Internal Audit, has been establish^\nand will be filled as soon as possible. A full program of internO\naudit will be developed to supples\nment services from the ComptrfH\nler General's Office and the Auditor General.\nSee Ministry's comments on Recommendation 9.56.\n SECTION 9, FINANCIAL MANAGEMENT AND CONTROL AUDITS\nRecommendations\nM in istry's Com ments\nuse of funds provided to School Districts,\nColleges and Institutes to ensure that these\nresources are being managed and used\nwith due regard to economy, efficiency\nand effectiveness.\nB.59 Operational review units should be established within the Ministry's Schools and\nPost-Secondary Departments, and the designated staff member responsible for these\nunits should routinely provide summaries\nof audit results to the Senior Financial\nOfficer.\nSCHOOLS' ENROLMENT DATA\n9.60 The Ministry should independently verify\nthe enrolment data submitted, and then\ncarry out checks in schools in the Districts\nto ensure that these data are complete and\naccurate enough to use as a basis for calculating School District funding.\nsufficient resources have been\nidentified, to undertake operational audits of field agencies.\nStaff from all Departments will be\ninvolved. The results of all audits\nwill be documented and filed with\nthe Assistant Deputy Minister -\nEducational Finance.\nSee Ministry's Comments on Recommendation 9.58.\nThe Ministry undertook audits of\nenrolment data in selected school\ndistricts in 1980 and plans to do so\nagain in future years.\nMinistry of Finance\nREPORT PRECIS\n9.61 The Ministry of Finance is responsible for the direct collection of most of the\nProvince's revenues and is also custodian and manager of almost all of the\nProvince's cash and investments. Although relatively few people are employed\nto carry out the Ministry's programs, these programs are nevertheless critical to\nthe management of the Province's revenues, cash and investments.\n9.62 Because most of the Ministry's activities are financial in nature, adequate systems of financial management and control are essentialto its operations. In many\n- cases it will be a complex task to design and maintain the systems and procedures that are necessary to carry out these operations properly. Complexity also\nbecomes apparent in defining the role of financial managers in the Ministry and\nin designing, developing and implementing cost-effective controls over revenues, expenditures, assets and liabilities.\n 116        REPORT OF THE AUDITOR GENERAL\n9.63 A key conclusion arisingfrom our audit is that the Ministry could take many mom\nsteps to improve both its organization and its system of financial management\nand control in order to bring them to an acceptable level. It is particula^B\nimportant that the Ministry should:\n\u2022 strengthen the organization, leadership and staffing of the financial furiwj\ntion so that it can operate effectively;\n\u2022 coordinate its planning, budgeting and budgetary control systems and\nimprove financial reports issued to managers in order to provide them wiW\nproper information and support;\n\u2022 reinforce the role of internal audit so that it can become a key part of thS\nmanagement and financial control system, and thus provide assurance tol\nmanagement that its control and management systems are adequate; anH\n\u2022 maintain operating controls over revenues and expenditures, and inverJJ\ntory controls over assets.\n9.64 Successfully strengthening financial management and control could provi\u2122\nsignificant benefits to the Ministry by:\n\u2022 providing the type of financial management information that would projj\nmote accountability and improve performance in all of the Ministr^B\noperations; and\n\u2022 helping the Ministry to cope with increasingly complex management tooH\nin a changing environment which will undoubtedly be affected by advances in electronic data processing technology for some time to comeBJ\n9.65 When we were carrying out our audit, we observed that the Ministry had\nrecognized the need to strengthen the role of financial management and conti\u2122\nin the management process. The Ministry had commissioned a special study^B\nevaluate its organization and structure, including the organization of thefirj^BJ\ncial management function. The Ministry is also taking steps both to improve'\u2122\nmethods of communicating financial control policies and procedures, and m\nrectify previously identified control weaknesses.\n9.66 The Ministry's initiatives, therefore, represent positive steps, which shdl&l\ncontribute to creating an environment in which financial management arM\ncontrol can be developed to a level that will satisfy the Ministry's needs.   ]\nRecommendations and Ministry's Comments\nRecommendations Ministry's Comments\nROLE OF FINANCIAL MANAGEMENT\n9.67    Management of the financial function. The An organizational structure for the\nrole and organization of the financial func- financial function has been^S\ntion should be clearly defined. Its res- veloped  and  is  being iM\n SECTION 9, FINANCIAL MANAGEMENT AND CONTROL AUDITS        117\n|'Recommendations\nMinistry's Comments\nponsibilities should be organized in such a\nway as to ensure the reliability, completeness, relevance and accuracy of financial\ninformation, advice and services provided\nto management.\n19.68 Functional direction. The lines of authority, both direct and functional, should be\ncommunicated throughout the Ministry.\nStrong financial direction should be provided to all personnel with financial responsibilities to ensure that all activities are\nmanaged according to consistently applied\nstandards.\nK.69 The Senior Financial Officer. The Deputy\nMinister should designate a Senior Financial Officer who will have the responsibility for designing, communicating and\nmaintaining all financial administration\nsystems within the Ministry. This officer\nshould be given enough functional authority to be seen throughout the Ministry as the\nsource of leadership and direction in all\nmatters concerning the systems of financial\nadministration. He should report directly\nto the Deputy Minister and be a member of\nthe management committee.\n^AFFING OFTHE FINANCIAL FUNCTION\n|fe.70 Position classifications. The Ministry\nshould review the responsibilities of all\nfinancial management and supervisory\npositions to ensure that the classification\nlevels of those positions are commensurate\nwith the responsibilities associated with\nthem.\nIfe.71 Training and professional development. A\nstaff training and career development policy should be developed. Both inhouse and\nexternal training programs should be\nestablished throughout the Ministry in\norder to ensure that financial personnel\nplemented. Roles and responsibilities of managers and the Controller have been defined in a policy\nstatement.\nAs indicated above, roles and responsibilities have been defined,\nreporting requirements established and an annual budgeting\nand review cycle put in place.\nThis position has been defined\nand is in place. The position reports to the Assistant Deputy\nMinister, Treasury and Administration.\nAll position classifications within\nthe Administration Branch are\nunder review.\nThe Ministry's Personnel and\nPayroll staff is developing an inhouse and external staff training\nprogram for implementation in\n1981\/82.\n 118\nREPORT OF THE AUDITOR GENERAL\nRecommendations\nMinistry's Comments\nhave skills commensurate with their\nresponsibilities.\n9.72 Financial function staff requirements. The\nnumber and quality of financial staff\nshould be reviewed. If necessary it should\nbe augmented to allow the financial management function to serve the needs of the\nMinistry adequately.\nCOMMUNICATION AND DOCUMENTATION\n9.73 Financial policies and procedures manual.\nThe Ministry should document all financial\npolicies, responsibilities, systems, procedures, directives and guidelines as part of a\nministry manual to help ensure that financial management and control systems and\nprocedures are clearly understood and\nconsistently applied at all levels.\nPLANNING, BUDGETING AND BUDGETARY\nCONTROL\n9.74 As part of the Ministry's continuing efforts\nto improve its management and control\nsystems, special emphasis should be given\nto designing an integrated system of planning, budgeting and budgetary control in\norder to ensure that managers at all levels\nhave the information they need to manage\neffectively, and that they can be held\naccountable for discharging their responsibilities.\nACCOUNTING AND FINANCIAL REPORTING\nSYSTEMS\n9.75 In conjunction with making improvements\nto the planning, budgeting and budgetary\ncontrol systems, the Ministry should design\na financial reporting system that generates\nfinancial and non-financial data. Reports\nshould clearly show both the levels of re-\nThis is an ongoing consideration\nin the Ministry's staff training and\nrecruitment program.\nA Central Ministry Services polkB\nand procedures manual is being\ndeveloped. Three of the items S\nbe included are: 1) Budgets anra\nExpenditure Control 2) Signing\nAuthorities and 3) Vote Expenditures. These policy and procedures are designed to ensurS\nbudget control both at the Branch\nlevel and Ministry level.\nAn annual budgeting and review\ncycle has been put in place. Trm\nincludes priority setting, object\u2122\nsetting, performance measurement, budgeting techniques and\nmanagement evaluation.\nMonthly financial management\nreports, both from the Controller\nto managers and from managers to\nthe Controller, are in place. Non-\nfinancial reports, based on exception reporting are being de-\n 1\nSECTION 9, FINANCIAL MANAGEMENT AND CONTROL AUDITS        119\nrecommendations\nMinistry's Comments\nsources used and the results of their utiliza\nveloped at the Branch level.\ntion.\nCONTROLS OVER EXPENDITURES\n19.76    Preparation of expenditure vouchers in the\nA signing authority policy is in\nTreasury Section. All expenditure vouchers\nplace. Documentation of sample\nshould be prepared in Treasury Section and\nsignatures is near completion. We\nshould be based on approved invoices and\ndo not agree that all vouchers\npayroll information from authorized\nshould be prepared centrally.\nbranch officers. Documented authorities\nVouchers should be prepared and\nand sample authorizing signatures should\ncertified by each responsible man\nbe available to Treasury Section personnel.\nager and approved centrally in\naccordance with documented\nprocedures.\nK.77    Approval of claims against the \"Conting\nA procedure for claims against\nencies (All Ministries)\" Vote. Charges\nBuilding Occupancy Contingen\nagainst the salary and other contingencies\ncies is in place. It is based on\nvote should be supported by the indepen\nTreasury Board pre-approval. A\ndent approval of Treasury Board Staff, in\nsimilar system will be put in place\norder to provide assurance that the\nfor Salary Contingencies, in 1981\/\namounts charged to the vote are accurate\n82. We do not agree that Treasury\nand properly authorized.\nBoard Staff should again approve\nat the time the charge is being\nmade.\n1 9.78    Expenditure controls in the Securities Sec\ntion. In order to strengthen its system of\ninternal control over expenditures, the\nSecurities Section should:\n\u2022   Clearly divide duties between pur\nThe issue is currently being ad\nchasing investments and arranging\ndressed in the Ministry's reorga\nbank transfers.\nnization.\n\u2022   Require that cheque vouchers be\nThis has been done.\napproved by personnel whose duties\ndo not include approving invoices\nand preparing cheque vouchers.\n\u2022   Ensure that invoices and supporting\nThis has been done.\ndocuments are effectively cancelled\nto prevent resubmission in error.\n\u2022   Routinely subject vouchers and sup\nThis is currently being incorpo\nporting information to accounting\nrated into Branch procedures.\nscrutiny before central processing.\n\u2022   Try to have the Section's temporary\nThe entire staffing issue has been\n 120\nREPORT OF THE AUDITOR GENERAL\n1\nRecommendations\nMinistry's Comments\naccounting positions changed into\npermanent positions to ensure that\ncurrent levels of accounting performance and efficiency are maintained.\nCONTROLS OVER REVENUES INCLUDING\nACCOUNTS^CEIVABLE\n9.79 Revenue control and collection policies. I n\norder to ensure that revenue is consistently\nand reliably collected and accounted for, a\nministry-wide statement of policies relating to accounting and financial control\nover revenues should be developed. These\npolicies, formulated by senior financial\nmanagement, should state the standards to\nbe met in the collection of and control over\nrevenues. The policies and procedures for\nthe control and collection of revenue\nshould be based on applicable legislation\nand directives of central agencies.\n9.80 Treasury Section cash and banking procedures. In order to strengthen control over\ncash handling and recording procedures,\nthere should be a supervisory review or\nindependent check made of the daily cash\nreconciliations and bank deposits in the\nTreasury Section.\n9.81 Consumer Taxation Branch cash handling\nprocedures. To provide protection for revenue receipts throughout the processing\ncycle, the Branch should adopt the following procedures:\n\u2022 Victoria Consumer Taxation Branch\nreceipts of cash and cheques should\nbe listed and controlled if not deposited immediately, and cheques res-\ntrictively endorsed as soon as possible after mail opening.\n\u2022 Vancouver cash and cheques should\nbe I isted as soon as they are received,\nand subsequently cleared against a\ncopy of the \"Receipt - Tax Transmit-\naddressed in the reorganization]\nmaster plan.\nA pol icy statement for governmerwj\nis being prepared.\nCash management supervisory\nrole was discussed in a recent con-\nsultant's report on the Minist^B\norganization. The recommend\u2122\ntions are currently being implemented.\nThe revenue functions of the\nMinistry are being reorganize\u2122\nThe concerns addressed here are\nbeing dealt with.\n SECTION 9, FINANCIAL MANAGEMENT AND CONTROL AUDITS        121\nRecommendations\ntal Form\", receipted by the Government Agent.\n\u00a9.82 Income Taxation Branch collection and\naccounting procedures. Efforts should be\nmade as soon as possible to separate the\nduties of the cash handling and accounts\nreceivable functions in the Income Taxation Branch.\n9.83 Real Property Taxation Branch billing and\naccounting systems. In order to ensure that\nmanagement is provided with accurate\nand reliable financial management information, the Ministry should consider improving both the reliability and capabilities\nof the Real Property Taxation Branch billing and accounts receivable systems.\n:ONTROLS OVER ASSETS\n9.84\n9.85\nAsset policy statement. In order to clarify\nresponsibility and accountability for the\ncontrol of assets, a ministry financial\nmanual should clearly document policies\ndefining both the assets requiring ongoing\ncontrol, and the responsibilities for their\nmanagement.\nInventory count of securities. In order to\nverify the existence of securities it holds for\nsafekeeping, the Securities Section should\ncount the securities at least once each year,\nunder the supervision of senior section\nstaff. The physical counts should be independently compared and reconciled to\nwritten control records and accounts.\n9.86\nFixed assets inventory. In order to provide\nprotection over and accountability for\nministry assets that are not subject to\nMinistry's Comments\nThese concerns are being addressed in the reorganization of the\nRevenue Division.\nThe Ministry will be reviewing\nthese systems as soon as the\navailability of resources permits.\nWe are in agreement with this recommendation. It is planned to\nhave such a policy and procedure\nin place by the end of 1981\/82.\nWith the full implementation of\nthe Ministry reorganization, adequate resources will be available\nto allow such a count. While we\nagree with completing a count\nother than the Auditor General's\ncount, it may be advisable to have\nit done by staff from another section of the Branch. It may be that\nspot checks, particularly with regard to bearer securities, would\nprovide a more effective control\nmechanism.\nIt is planned to have an assets registry in place by the end of 1981\/\n82.\n 122        REPORT OF THE AUDITOR GENERAL\nTj\nRecommendations\nMinistry's Comments\nongoing accounting control, an inventory\nof furniture, equipment and vehicles\nassigned to the Ministry should be maintained. Assets should be subject to verification by periodic physical counts. The\nMinistry should consider using the existing\ncomputer program for fixed assets in the\nData Procesisng Branch.\nINTERNAL AUDIT\n9.87 The Ministry's internal audit requirements\nshould be comprehensively assessed and a\nplan developed to meet these requirements. As part of this process, the Ministry\nshould consider how best to organize and\nstaff the internal audit function. Particular\nemphasis should be given to planning the\nfrequency of internal audits in the Ministry.\n9.88 In order to provide senior management\nwith an independent and objective measure of the adequacy of its management\nand control systems, the scope of internal\naudit should be expanded to include reference to important questions of economy,\nefficiency and effectiveness.\nMinistry of Human Resources\nA comprehensive audit plan foB\nthe Ministry has been developed\nand is in the process of implemerS\ntation.\nThe audit program planned forthaj\nMinistry of Finance includes a review of all processes of financial\nadministration to assess their ecoj\nnomy, efficiency and effectivS\nness.\nREPORT PRECIS\n9.89 Our review of financial management and control was carried out in conjunction\nwith the comprehensive audit of the Ministry's Income Assistance programf,\nAccordingly, we have included a summary of our major findings and recomf\nmendations with the comprehensive audit observations in Section 8 of this\nReport (paragraphs 8.115 to 8.133). We have reported the recommendation\narising from our review of the Internal Audit function in Section 8 (paragraph\n8.234 to 8.252) and therefore we have not repeated them below. All oth\u2122\nrecommendations dealing with the financial management and control aspectsM\nour comprehensive audit work are listed below, together with responses frorm\nthe Ministry.\nU\n SECTION 9, FINANCIAL MANAGEMENT AND CONTROL AUDITS        123\nBtecom\nmendations\nMinistry's Comments\nRecommendations and Ministry's Comments\nORGANIZATION AND MANAGEMENTOF THE\nFINANCIAL FUNCTION\n9.90\nThe administrative responsibilities of the\nComptroller should be reviewed to ensure\nthat they do not hinder him from carrying\nout his primary role.\nAgreed. A review of the organization and staffing of the Comptroller's Office is underway and admi-\nnistrative responsibilities are\nbeing reassigned so as to ensure\nthat the Comptroller is better able\nto carry out his primary role.\n9.91\nThe role of financial management, and the\norganizational plans of the Comptroller's\nOffice showing direct and functional responsibilities, should be clearly articulated\nand communicated to all levels of the organization to ensure that they are fully recognized and understood.\nAgreed. Organizational plans of\nthe Comptroller's Office, clearly\ndelineating direct and functional\nresponsibilities, will be circulated\nwithin the Ministry immediately\nfollowing completion of the organization and staffing review noted\nabove.\n9.92\nIn order to ensure that line operating personnel receive sufficient direction on\nfinancial and control matters, the Ministry\nshould clearly define how the Comptroller's organization is to carry out its functional responsibilities (i.e. whether the\nComptroller is to issue broad criteria or\ndetailed procedures). All personnel should\nthen be advised accordingly.\nAgreed. The question as to how\nthe Comptroller's Office is to carry\nout its functional responsibilities\nwill be clarified within the context\nof the organization and staffing review noted above.\n9.93\nTo ensure that the financial function serves\nthe needs of the Ministry more effectively,\nwe recommend that the Comptroller develop an operational plan, that specifies\ngoals, objectives, activities, timing, assessment criteria and required resources. The\nplan should then be submitted to the executive for approval, assignment of priorities and allocation of resources.\nAgreed. The development of an\noperational plan for the Comptroller's Office will form a part of the\norganization and staffing review\nnoted above.\n1 9.94\nThe Ministry should continue developing\nprocedures which require responsibility\nareas to formally approve (\"sign-off\") new\nAgreed. The Ministry is in the process of developing procedures\nwhich will address these issues.\n 124\nREPORT OF THE AUDITOR GENERAL\ni\nRecommendations\nMinistry's Comments\nsystems and procedures. As well, responsibility areas should participate in all stages\nof the design and development of any systems that they are being asked to approve.\n9.95 The Comptroller should fully assess plans\nfor the development and implementation\nof on-line computer systems and should\ndocument the financial, accounting and\ncontrol implications. This analysis should\nincorporate:\n\u2022 feasibility studies including post-\nevaluation procedures;\n\u2022 assessment criteria and procedures to\nbe followed during the testing\nphases;\n\u2022 controls over the conversion and\nongoing operation of the system; and\n\u2022 an analysis of the current and projected impact of the on-line program\non both the organization and operation of the financial function.\n9.96 In order to ensure that both manual and\nelectronic data processing systems incorporate adequate safeguards, the Comptroller should establish financial control criteria against which to assess their development and operation.\n9.97 To provide assurance about the adequacy\nof accounting controls in the Income\nAssistance computer system, the Ministry\nshould act on its plans to review and document the accounting requirements for the\nsystem. Current accounting practices\nshould then be documented and compared\nwith the accounting and control requirements.\n9.98 The number and quality of financial personnel in the Comptroller's Office should\nbe reviewed to ensure that it can effectively\ncarry out alI of its responsibilities, with par-\nAgreed. The Ministry is in the pfdJJ\ncess of aquiring qualified staff tol\naddress this issue; it should be\nnoted, however, that the MinistS\nhas experienced some considi|B\nable difficulty in securing qualB\nified accounting staff given the\ncurrent Government-wide classa\nfication plan.\nAgreed. The Ministry will develoS\na project administration manual to\nprovide control standards and guidance for Ministry staff involved in\ncomputer systems development*\nIncluded in this manual will be\nfinancial control criteria.\nAgreed. A formal review of the Income Assistance computer syst^B\nwill be carried out, giving particH\nlar attention to the adequacy of\nexisting accounting controls.\nAgreed. The Ministry has recogS\nnized the need to upgrade the]\nquality and quantity of financial\npersonnel.\nD\n \u2022Recommendations\nMinistry's Comments\nticular emphasis on:\n\u2022 assessing and providing for adequate\ncontrols in electronic data processing\nsystems;\n\u2022 providing the type of direction\nneeded by non-financial staff who\nperform financial tasks; and\n\u2022 identifying training needs of financial\nand non-financial staff.\n9.99 The Comptroller's Office should prepare\naccounting manuals that cover the responsibilities and authority of financial and\noperating staff who carry out financial\ntasks. The manuals should provide appropriate information on financial policies\nand procedures used at headquarters and\nin the field.\nB. 100 In order to ensure the orderly development\nof new procedures and documentation\nprojects, the Comptroller's Group should\nprepare comprehensive terms of reference\nfor all significant assignments. Procedures\nshould also be established to monitor work\nin progress.\nPlanning, budgeting and budgetary\nkcontrol\n|\u00bb;101 Strategic (five-year) and long-term (two to\nfive-year) financial and operating plans\nshould be prepared for the Ministry. These\nplans should provide guidance and direction to departments in preparing their sections for the annual Estimates and should\npermit these departments to coordinate\ntheir own strategic and long-term plans\nwith the goals of the Ministry.\n). 102 In order to ensure that budget estimates do\nnot rely unduly on prior years' expenditures, a review of objectives, priorities and\nalternative means of achieving objectives\nshould be incorporated in the budgetary\nAgreed. A headquarters accounting procedures manual has been\nstarted and will be completed by\nApril 1981.\nA project control system was\nestablished in June 1980 which\ndetails terms of reference and\nmonitors work assigned within the\nsystems area. This system will be\nexpanded to other areas within the\nComptroller's Office.\nAgreed. The Ministry is reorganizing headquarters staff to establish\na Strategic Planning branch. One\nof the core functions of this branch\nwill be to coordinate and provide\ntechnical support to the development of strategic and long-term\nplans for the Ministry.\nThe Ministry is continuing to develop its budgetary process towards these objectives.\n 126\nREPORT OF THE AUDITOR GENERAL\n1\nRecommendations\nMinistry's Comments\nprocess for existing programs as wel I as for\nnew initiatives or programs.\n9.103 The Comptroller's Office should provide\nguidance to Regional Managers to ensure\nthat budgeting activities are more consistent among District Offices and that the\nbudgetary responsibility assigned to District Offices is commensurate with their\noperating authority.\n9.104 The Comptroller's Office should provide\nguidance and direction to line managers to\nenable them to translate the annual Estimates into operational work plans. Such\nplans should help management to monitor\nperformance and to assess progress in relation to the budget.\n9.105 In order to monitor the budget more accurately, the Ministry should establish a policy requiring variance analysis, and the\nComptroller's Office should develop related procedures. Budgeting transfers\nshould also be appropriately recorded,\nanalysed and reported for management review.\nAgreed. The review of budgetary!\nplanning procedures is an\nongoing activity within the MinS\ntry, and the Ministry will continue\nto place high priority on the involvement and training of Region]\nal Managers in this process.\nAgreed.\nAgreed. Revised policy and procS\nedures relating to variance analjH\nsis and financial reporting will pel\ndeveloped during the 1981\/82 fisa\ncal year.\n9.106 To ensure that the budgetary process is\nunderstood, it should be documented in a\nmanual, which should be made available\nto all personnel involved in this activity.\nACCOUNTING AND FINANCIAL REPORTING SYSTEMS\nAgreed. A project to consolidate!\nin a manual the written instruS\ntions which currently exist ha]\nbeen initiated.\n9.107 The Ministry should continue to review its\nfinancial reporting requirements and\nshould take full advantage of the increased\nnumber of reports recently made available\nby the Office of the Comptroller General.\n9.108 A policy and related procedures should be\ndeveloped concerning cost benefit analysis for all major accounting and operating\nsystems.\nA review of financial reporting requirements has recently been\ncompleted and the Office of tha\nComptroller General has beer]\nasked to produce appropriate reS\nports.\nAgreed.\nJ\n m\nSECTION 9, FINANCIAL MANAGEMENT AND CONTROL AUDITS        127\n',  Recommendations\nMinistry's Comments\n1 9.109\nTo ensure that financial records are accu\nThe Comptroller General's Office\nrate and complete, the Ministry should im\nhas scheduled the implementa\nplement a batch control procedure as soon\ntion of a batch control system for\nas this task can be coordinated with the\nthe fall of 1981.\nComptroller General's Office. In the mean\nWe do not consider it practical to\ntime, all personnel who submit documents\ndevelop the suggested alternate\nfor processing should be instructed to ex\nprocedure due to the short time\namine financial management reports to en\ninvolved and number of staff\nsure that all data submitted has been pro\naffected in our decentralized en\ncessed in a timely and accurate manner.\nvironment.\n9.110\nIn order to prevent an interruption in electronic data processing and the ability to\ndistribute cheques, the Ministry should develop, document and test contingency\nplans.\nAgreed.\nFINANCIAL CONTROL OF REVENUE AND\nEXPENDITURE\nU 9.111\nThe Ministry should provide for sufficient\nAgreed; however, implementa\nsegregation of duties to ensure that person\ntion of this recommendation pre\nnel who authorize input to the computer\nsents significant practical difficul\ndo not have access to either prepared or\nties, particularly in the small out\nreturned cheques, or to vouchers that are\nlying districts.\nrejected during the processing operation.\n9.112\nThe Ministry should review its payroll pro\nAgreed. The Comptroller was\ncedures to standardize them between Van\nassigned this project but progress\ncouver and Victoria. It should produce a\nhas been slow due to insufficient\nmanual to guide staff both at Headquarters\nstaff.\nand in the field.\n9.113\nTo ensure that all amounts recoverable by\nthe Ministry are controlled and followed-\nup, it should give priority to establishing a\npolicy and procedures for accounts receivable.\nAgreed.\n1  9.114\nAll cheques should be restrictively endorsed when received and independently\ncompared to acknowledgement of deposit,\nin order to improve the control over cash\nreceipts.\nAgreed.\n9.115\nIn order to permit an effective, ongoing\nThe Comptroller has established a\n 128\nREPORT OF THE AUDITOR GENERAL\n1\nRecommendations\nMinistry's Comments\nassessment of the accounts processing      reporting system which addressS\noperation, the Ministry should document      this issue,\nprocedures for monitoring this activity to\ndetect errors and encourage prompt processing.\nACCOUNTING CONTROLS OVER ASSETS\n9.116    To ensure that all assets are adequately      Agreed,\nsafeguarded, policies and procedures for\nthe control of assets should be established\nand coordinated with other ministries or\ncentral agencies.\nMinistry of Lands, Parks and Housing\nREPORT PRECIS\n9.117 The Ministry of Lands, Parks and Housing was established in December 197OT\nwhen parts of three ministries were combined. The Ministry is not a large ori^H\nterms of program expenditures, which amounted to $65 million in the 1980]\nfiscal year. However, it is complex because of the diversity of its operations and]\nits responsibility for two large, special-purpose funds (the Crown Land Fund and]\nthe Provincial Home Acquisition Fund), with combined assets of $558 million]\n9.118 The Ministry faced major challenges in integrating the staffs of three otheB\nministries. Therefore, in its early stages, it concentrated on organization, progB\nram direction and development and policy formulation. Throughout this critical\nperiod, however, key financial staff were not in place.\n9.119 The Ministry has recognized that as a consequence, deficiencies in many areas\nof financial management and control have arisen, and has taken steps to improve!\nits practices. Nevertheless, many improvements will still have to be made befora\nthe Ministry can meet its objective of developing an adequate system of financial I\nmanagement and control. The Ministry must continue to invest considerar^B\ntime and effort in developing and acquiring the financial skills requiredlH\nprovide adequate financial management and control, and to design and impleS\nment the necessary systems and procedures. Our recommendations are\ndesigned to suggest what direction the Ministry might follow in overcom^BJ\ndeficiencies that we noted during our audit.\n9.120 We believe that if the Ministry is to emphasize the importance of the finajgHJ\nfunction, the Senior Financial Officer should report directly to the DepuH\nu\n SECTION 9, FINANCIAL MANAGEMENT AND CONTROL AUDITS        129\nMinister and his role should be formally endorsed and communicated. Our audit\nshowed that management throughout the Ministry did not fully understand the\nministry-wide role assigned to the Senior Financial Officer and his staff. In some\ncases, management did not recognize their importance in the planning and\nmonitoring of the Ministry's activities. For example, managers often addressed\nand tried to solve financial management and control problems without first\nconsulting with the Senior Financial Officer.\n|9.121 The Ministry has developed a well-defined and documented budget process, but\nit could be improved if the Ministry were to establish clear, long-term objectives,\nstated in measureable terms. In addition, the Ministry must devote much more\neffort to developing reporting systems that will provide for sound budgetary\ncontrol.\n9.122 We found that internal controls over the processing of expenditure, payroll and\nrevenue transactions were being applied inconsistently among field offices.\nSpecifically, we noted variances in delegated authority for expenditures, weaknesses in the processess of hiring and paying auxiliary staff, and duplication of\nchecking procedures between staff in field offices and financial staff at Headquarters. Finally, we noted inadequacies in the revenue monitoring function.\n9.123 The Ministry has clearly recognized the need to develop a strong internal audit\nfunction. Accordingly, it has been working with the Office of the Comptroller\nGeneral to develop a plan for doing so. However, its efforts in this direction have\nthus far been unsuccessful. In any organization, which like the Ministry has\ncomplex and decentralized activities and systems, internal audit is the key to\nproviding assurance to senior management that its management and control\nsystems and procedures are suitable, and that they are operating reliably and\nconsistently. Internal audit is critical in keeping management aware of the extent\nto which operations within the organization are being managed with due regard\nto economy, efficiency and effectiveness.\nh. 124 While much remains to be done, it is important to note that throughout our audit,\nthe Ministry was working to solve many of the problems that we found, and that it\nhad launched initiatives aimed at improving its financial management and\ncontrol practices.\nI Recommendations and Ministry's Comments\nI   Recommendations Ministry's Comments\nORGANIZATION OF THE FINANCIAL\nFUNCTION\n\u00a7).125 The Deputy Minister should formally en- Agree. Some facets already corn-\ndorse the Senior Financial Officer's role as pleted and in place with addition-\nencompassing all components of financial      al documentation to follow.\n 130        REPORT OF THE AUDITOR GENERAL\nRecommendations\nMinistry's Comments\nmanagement and control. The role and responsibilities should then be documented\nand communicated to all levels of personnel throughout the Ministry to ensure that\nthey are clearly understood.\n9.126 The Ministry's Senior Financial Officer\nshould report directly to the Deputy Minister, both to ensure an appropriate reporting\nrelationship that will support the Deputy\nMinister, and to emphasize the importance\nof the role of financial management and\ncontrol.\n9.127 The Senior Financial Officer's non-\nfinancial responsibilities should be reviewed to ensure that they do not detract\nfrom his primary responsibility for the\nfinancial management and control function.\n9.128 The Senior Financial Officer should develop without delay a comprehensive plan\nto provide adequate financial management\nand control within the Ministry. The plan\nshould be approved by senior management.\n9.129 The Ministry should evaluate the staffing of\nthe Central Financial Group to ensure that\nit has enough personnel with the necessary\nskills to carry out its mandate.\n9.130 The Ministry should document the functional relationships between the Central\nFinancial Group and all other financial\nofficers in the Ministry. These relationships\nshould be communicated to all personnel\nto ensure that the financial management\nand control function operates consistently\nand reliably throughout the Ministry.\n9.131 The Senior Financial Officer should review\nthe non-financial responsibilities of other\nfinancial officers to ensure that they are\nable to devote enough time to financial\nmatters.\nThe Ministry is prepared to give\nthis recommendation serious coS\nsideration.\nThe Ministry is satisfied that tha\nSenior Financial Officer's range of\nresponsibilities does not jeopaS\ndize or detract from his mandate!\nfor effective financial manage]\nment and control.\nAgree. This plan will be finalizem\nand endorsed shortly and wijm\ncontemplate a time table of at leas]\nthree years duration.\nAgree. An organization, staffing]\nand training needs analysis revie\\w\nis currently underway.\nSame comment as for 9.129.\nSame comment as for 9.129.\n If\nSECTION 9, FINANCIAL MANAGEMENT AND CONTROL AUDITS\nRecommendations\nMinistry's Comments\n|9.132 The Ministry should review all of its staff\nresources in the financial management and\ncontrol function throughout the Ministry to\nensure that both the number of staff and\ntheir skills are sufficient in relation to their\nassigned responsibilities.\n|B.133 The Ministry should establish training\nprograms to upgrade or provide staff with\nthe required skills and should initiate\ncareer development plans for its financial\nofficers.\n19.134 To provide the framework for appropriate\nsystems and controls, the Central Financial\nGroup should document and communicate financial responsibilities, policies,\nprocedures and systems throughout the\nMinistry.\nPLANNING, BUDGETING AND BUDGETARY\njfcONTROL\nEl 35 The Ministry should develop and cost\nstrategic and long-term plans. Plans should\nstate objectives and should assess various\nmeans of meeting these objectives and the\ncosts of doing so.\nSame comment as for 9.129.\ni\u00a9.136\n\u00ab 9.137\nU 9.138\nEstimates should be based upon a long-\nterm plan. They should include measurable objectives to ensure that subsequent\nperformance can be reliably assessed and\nthat corrective action can be taken where\nappropriate.\nAll programs should be fully costed and\nreviewed together with their objectives as\npart of the Estimates process.\nOperating budgets should be prepared that\nrecognize the seasonal nature of expenditures, and which contain key performance\nindicators. They should be subject to challenge and approval by senior manage-\nSame comment as for 9.129.\nThis task has already commenced\nbut due to size of task this will be\naddressed on a priority basis and\nwill require considerable time for\ncompletion.\nThe Ministry recognizes a need for\ngreater development in this area,\nbut current planning strategies do\napply techniques of cost effectiveness set in the context of a long\nterm view.\nEstimates are currently built within a management by objectives\nand zero based budgeting system,\nbut additional emphasis will be\ngiven to measurement and program evaluation.\nTo the extent that this is useful the\nMinistry will continue to enhance\nits costing technique.\nWhile benefits may be derived\nfrom the development of more\nspecific and measureable performance indicators the Ministry\nbelieves it has an effective budget\n ~~fl\n132\nREPORT OF THE AUDITOR GENERAL\nRecommendations\nMinistry's Comments\nment, and consolidated to provide the\nnecessary Ministry budget.\n9.139 The Ministry should formulate a policy of,\nand develop procedures for, providing\nmeaningful variance analysis to all levels\nof management so that it can assess operations and take prompt corrective action\nwhere warranted. The Ministry should review current proposals in this area in order\nto ensure that they will meet the Ministry's\nneeds for this type of information.\nACCOUNTING AND FINANCIAL REPORTING\nSYSTEMS\n9.140 The Central Financial Group should review all accounting and financial systems\nwithin the Ministry in detail to determine\ntheir appropriateness and the quality of information they produce.\n9.141 The Senior Financial Officer should, as\nsoon as possible, ensure that a complete\nand coordinated financial reporting system\nis designed in order to provide reliable\nfinancial information in a format useful to\nmanagers at all levels. Any new system\nshould ensure the orderly processing and\nefficient accumulation of data on a timely\nbasis. Existing fragmented and ad-hoc reporting systems should be eliminated\nwherever possible.\n9.142 A policy should be implemented to ensure\nthat no new financial systems or modifications to existing financial systems can be\ndeveloped without the approval of the\nSenior Financial Officer. The policy should\nalso ensure, as appropriate, that all new\nsystems and modifications are supported\nby cost\/benefit analysis.\n9.143 The Central Financial Group should review all existing reporting systems to eli-\ndevelopment system in place\nwhich provides ample opportug\nity for scrutiny and challenge.\nWith the exception of minor improvements the Ministry is satisfied that its financial review policy j\nis adequate to ensure effective I\nprogram and financial control.\nAgree. This will be a major objec-j\ntive of the financial systems de-4\nvelopment plan.\nAgree. A plan will be developed \u00ab\nwhich articulates Ministry infojpj\nmation requirements and which]\ncan be blended with central agency initiatives for a Governments\nwide financial systems network.*\nAgreed. This policy now in effect!\nAgreed. This task will be under]\ntaken in conjunction with thedeS\n SECTION 9, FINANCIAL MANAGEMENT AND CONTROL AUDITS\n133\nRecommendations\nMinistry's Comments\nminate duplication among them. The reports produced should be reconciled to\neach other to ensure that the information\nused for monitoring and decision-making\npurposes is complete and consistently prepared.\nFINANCIAL CONTROL OF EXPENDITURE AND\nREVENUE\n9.144 To ensure that transactions are accurately\nand consistently approved and processed,\nthe Ministry should develop a manual that\ndocuments accounting policies, responsibilities and procedures for processing\ntransactions, both in field offices and at\nHeadquarters.\n| 9.145 The Central Financial Group should establish a training program for financial staff,\nand should visit field offices regularly in\norder to resolve problems and monitor\nadherence to policies and procedures.\nB.146 The Ministry should review internal controls over hiring and paying auxiliary staff\nand should standardize these controls\nthroughout the Ministry in order to ensure\nthe integrity of payroll expenditures.\nI 9.147 To ensure that only authorized personnel\ncan approve expenditures, the Ministry\nshould institute a policy and associated\nprocedures for delegating commitment,\nspending and payment authority.\n|! 9.148 A manual that documents all policies, responsibilities, and procedures for parks revenue should be developed to ensure adequate internal controls over revenue.\nI 9.149 The Ministry should consider transferring\nongoing responsibility for monitoring revenue to Parks regional offices, supplemented centrally by regular analytical\nreview and annual internal audit work.\nvelopment of a financial systems\nnetwork, but due to the size of the\ntask will be addressed on a priority\nbasis and will require considerable time for completion.\nThe development of revised and\nenhanced procedure manuals will\nbe given priority attention.\nTraining program review presently underway and additional on-\nsite field reviews will be expanded.\nIt is agreed that a review of payroll\nprocedures for auxiliary staff is\nwarranted.\nA project is already underway to\ninstitute a new financial signing\nauthority policy.\nThis will be examined in concert\nwith the requirements noted\nunder Section 9.144 above.\nThis will be considered as part of\nthe organization review currently\nunderway.\n 134        REPORT OF THE AUDITOR GENERAL\nRecommendations\nMinistry's Comments\n9.150 The Ministry's Computer Enhancements\nCommittee should review the land lease\nrevenue system before it carries out major\nproposed enhancements in order to ensure\nthat the system incorporates adequate internal controls.\n9.151 The Central Financial Group should establish adequate accounting systems, procedures and records for controlling land sales\nand receivables.\n9.152 Responsibilities for monitoring and controlling land leases and sales should be\nestablished, both in the field and at Headquarters.\n9.153 In order to ensure reliable processing of\ndata, the Ministry should establish a formal\ntraining program for computer operators\nand supervisors responsible for the land\nlease system.\nASSET CONTROLS\n9.154 The Ministry should develop, document\nand communicate an asset control policy.\nIt should cover the assets being controlled,\nthe levels of control required, systems and\nprocedures, and ongoing monitoring responsibilities in order to ensure an effective\nand efficient asset control system.\n9.155 The Ministry should assign responsibility\nfor systems that control assets to the Central\nFinancial Group.\nCROWN LAND FUND\n9.156 The Ministry should clearly establish and\ncommunicate responsibilities for recording, monitoring, and controlling transactions in the Crown Land Fund.\nThe Computer Enhancements!\nCommittee has a detailed working j\nlist of enhancements required to]\nremedy certain internal controw\ndeficiencies.\nThe Computer Enhancements\nCommittee has already identified!\nthis task and will incorporate land I\nsales and receivables into thaj\nsystem.\nThis will be considered as parto]\nthe organization review currentlaj\nunderway.\nThe Computer Enhancement]\nCommittee has taken on the design of such a program as part of\ntheir mandate.\nMinistry agrees that further de]\nvelopment is warranted here bu]\nefforts on asset control will requirgj\nslotting into the overall priorities\nfor a longer term financial man]\nagement enhancement plan.\nThis recommendation will becoraj\nsidered.\nA project is currently underwaj\nwhich will address some of thaj\nconcerns noted in this recommeraj\ndation as they pertain to regionaB\noffices. Further review will baj\ntaken in respect to central and exB\nternal relationships.\n 1\nSECTION 9, FINANCIAL MANAGEMENT AND CONTROL AUDITS        135\nRecom\nmendations\nMinistry's Comments\n9.157\nThe Ministry should reconcile and correct\nAn analysis of existing and old\naccount balances for existing and old pro\nprojects is now in progress.\njects as soon as possible to ensure that the\nfund balance is correctly stated.\n19.158\nGiven that the current reporting system for\nWhile it is agreed that a review of\nthe Crown Land Fund does not appear to\npotential revisions to the Crown\nbe meeting the information needs of man\nLand Fund is warranted, the\nagement, the Ministry should assess\nMinistry believes that the fund\nwhether or not its continued use is appro\nstatement as currently constituted\npriate.\ndoes provide a useful management information tool.\nBRITISH COLUMBIA HOUSING MANAGEMENT COMMISSION (BCHMC)\n9.159\nThe Ministry should establish monitoring\nIn recognition of the potential for\nresponsibilities and reporting requirements\ndiffering assumptions to be made\nfor all programs administered by BCHMC\nin respect to responsibilities be\nand subsidized by the Ministry's vote in\ntween the Ministry and BCHMC,\norder to ensure proper control over assets\nthe Ministry will undertake a re\nand program expenditures.\nview that will articulate each party's role in respect to program and\nfinancial monitoring, controlling\nand reporting.\n[\u00a9.160\nThe Ministry should conclude a written\nagreement with BCHMC covering the\nabove requirements.\nSame comment as for 9.159.\n:   9.161\nThe Central Financial Group should work\nclosely with BCHMC to ensure that the\nCommission's existing accounting controls\nare adequate.\nSame comment as for 9.159.\n9.162\nThe Ministry should direct BCHMC auditors to report on certain programs, such\nas High Impact Grants, that have created\nproblems in the past.\nSame comment as for 9.159.\n!   INTERNALAUDIT\nI  9.163\nIn order to provide for internal audit com\nAgree. Discussions are now being\nmensurate with its needs, the Ministry\narranged to review the Ministry's\nshould review its requirements. Then, in\nrequirements for internal audit\nconsultation with the Comptroller Gener\nand to determine the most effec\nal, the Ministry should determine how its\ntive means of meeting these\nneeds can most efficiently be met. A corn-\nneeds.\n 136        REPORT OF THE AUDITOR GENERAL\nI\nRecommendations\nMinistry's Comments\nprehensive internal audit program, based\nupon the results of this review, should then\nbe implemented.\n! J\n APPENDICES\n  Table of Contents\nAPPENDICES\nI Sections of the Auditor General Act Relevant to the Respon-  141\nsibilities of the Auditor General.\nII Public Bodies of Which the Auditor General was the   145\nAppointed Auditor as at 31 March 1980.\nIII Public Bodies, of Which the Auditor General was not the  146\nAppointed Auditor, Whose Financial Statements are\nIncluded in Section F of the Public Accounts.\nIV Sections A (pages A1 to A13), B and C of the Public Accounts 147\n \u25bcl\n 141\n[Appendix I\nSections of the Auditor General Act Relevant to the Responsibilities of\nthe Auditor General\n\\EXAMINATION OF ACCOUNTS\n6. (1) The Auditor General shall examine in the manner he considers necessary the\naccounts and records of the government relating to the consolidated revenue fund and\nall public money, including trust and special funds under the management of the\ngovernment, and to public property.\n(2) Notwithstanding any other Act, the Auditor General\n(a) shall be given access to the records of account and administration of any\nministry; and\n(b) may require and receive from any person in the public service, information,\nreports and explanations necessary for the performance of his duties.\nREPORT ON FINANCIAL STATEMENTS\n:   7. (1) The Auditor General shall report annually to the Legislative Assembly on the\n:inancial statements of the government, including those required by section 40 of the\nfinancial Control Act, respecting the fiscal year then ended.\n(2) The report shall form part of the public accounts and shall state\n(a) whether he has received all of the information and explanations he has\nrequired; and\n(b) whether in his opinion, the financial statements present fairly the financial\nposition, results of operations and changes in financial position of the government in accordance with the stated accounting policies and as to whether\nthey are on a basis consistent with that of the preceding year.\n'.   (3) Where the report of the Auditor General does not contain the unqualified opinion\n\u25a0equired under this section, the Auditor General shall state the reasons why.\n\\NNUAL REPORT\n8. (1) The Auditor General shall report annually to the Legislative Assembly on the\ni\/vork of his office and call attention to anything resulting from his examination that he\n:onsiders should be brought to the attention of the Legislative Assembly including any\ni :ase where he has observed that\n(a) accounts have not been faithfully and properly kept or public money has not\nbeen fully accounted for;\n(b) essential records have not been maintained;\n(c) the rules, procedures or systems of internal control applied have been insufficient\n(i) to safeguard and protect the assets of the Crown;\n(ii) to secure an effective check on the assessment, collection and proper\nallocation of the revenue;\n T\n142        REPORT OF THE AUDITOR GENERAL\n(iii) to ensure that expenditures have been made only as authorized;*!^\u2122\n(iv) to ensure the accuracy and reliability of the accounting data; or\n(d) public money has been expended for purposes other than for which it wa\u00bb\nappropriated by the Legislature.\n(2) In the report the Auditor General may also include an assessment\n(a) as to whether the financial statements of the government are prepared in\naccordance with the most appropriate basis of accounting for the purpose of\nfair presentation and disclosure; or\n(b) as to whether any program being administered by a ministry is being adminial\ntered economically and efficiently.\nTRIVIAL MATTERS\n9. The Auditor General need not report to the Legislative Assembly on any matter he\nconsiders immaterial or insignificant.\nSUBMISSION OF ANNUAL REPORT\n10. (1) A report of the Auditor General to the Legislative Assembly shall besubmiSj\nted by him through the Minister of Finance.\n(2) On receipt of a report of the Auditor General, the Minister of Finance shall lay the\nreport before the Legislative Assembly as soon as possible.\n(3) If the Minister of Finance does not lay the report before the Legislative AssemblBj\non the first sitting day following the receipt of the report by him, the Auditor Genera\u2122\nshall transmit the report to the Speaker and the Speaker shall lay the report before the\nLegislative Assembly.\n(4) On being laid before the Legislative Assembly, the annual report of the Audit^B\nGeneral shal I be referred to the Publ ic Accounts Committee of the Legislative AssemblyB\nSPECIAL REPORT\n11. The Auditor General may at any time make a special report to the Legislat^BJ\nAssembly on a matter of primary importance or urgency that, in his opinion, should f^BJ\nbe deferred until he makes his annual report.\nOTHER REPORTS\n12. The Auditor General may at any time make a report to the Minister of FinanoaJ\nthe Treasury Board, the Lieutenant Governor in Council, or any public officer on any\nmatter that in the opinion of the Auditor General should be brought to his or th^\nattention.\nSPECIAL ASSIGNMENTS\n13. The Auditor General may undertake special assignments at the request of the\nLieutenant Governor in Council, but he is under no obligation to carry out any\n\u00bb\n 143\nHpfested assignment if, in his opinion, it would interferewith his primary responsibilities.\nI STAFF IN MINISTRIES\n14. (1) The Auditor General may station in any ministry a person employed in his\noffice to enable him to more effectively carry out his duties, and the ministry shall\nprovide the necessary office accommodation for a person so stationed.\n(2) The Auditor General shall require every person employed in his office who is to\n\u00a9amine the accounts or the administration of a ministry pursuant to this Act to comply\nwith any security requirements applicable to, and to take any oath of secrecy required to\nbe taken by, persons employed in that ministry.\nINQUIRY POWERS\n15. The Auditor General may examine any person on oath on any matter pertaining\nto his responsibilities and for that examination the Auditor General has all the powers,\nprotection and privileges of a commissioner under sections 12, 15 and 16 of the Inquiry\nAct.\nPUBLIC BODIES\n16. (1) Notwithstanding any other Act, where the Auditor General is not the auditor\nof a public body,\n(a) the public body shall, on the request of the Auditor General, supply the\nAuditor General with a copy of all financial statements and reports relating to\nthe public body;\n(b) the auditor of the public body shall, on the request of the Auditor General,\nwithin a reasonable time, make available to the Auditor General, all working\npapers, reports and other documents in his possession relating to the public\nbody; and\n(c) the Auditor General may conduct examinations of the records and operations of the public body he considers necessary or advisable to carry out his\nduties under this Act.\n(2) Notwithstanding any other Act, the Auditor General\n(a) shall be given access to the records of account and administration of any\npublic body; and\n(b) may require and receive from any officer or employee of a public body\ninformation reports and information necessary for the performance of his\nduties.\nELIGIBILITY AS AUDITOR\n17. Notwithstanding any other Act, the Auditor General is eligible to be appointed\nthe auditor, or a joint auditor, of a Crown corporation, Crown agency or public body.\n T\n144        REPORT OF THE AUDITOR GENERAL\nTRANSFER OF AUDIT DUTIES\n18. The Lieutenant Governor in Council may transfer to the Auditor General the dufS\nimposed by any Act on the Comptroller General to conduct an audit.\n Appendix II\nPublic Bodies of Which the Auditor General was the appointed Auditor\nat 31 March 1980\n\"British Columbia Assessment Authority\n\"British Columbia Educational Institutions Capital Financing Authority\n\"British Columbia Harbours Board\n\"British Columbia Health Care Research Foundation\nBritish Columbia Heritage Trust\nBritish Columbia Institute of Technology\nBritish Columbia Power Commission Superannuation Fund\nBritish Columbia Railway Company Pension Fund\n\"British Columbia Regional Hospital Districts Financing Authority\n\"British Columbia School Districts Capital Financing Authority\nCaptain Cook Bi-Centennial Committee\nCollege Pension Fund\n| Creston Valley Wildlife Management Authority Trust Fund\nHealth Facilities Association of British Columbia\n| \"Legal Services Society\nI\"Medical Services Commission\nMunicipal Superannuation Fund\nPacific Vocational Institute\nProvincial Capital Commission\nProvincial Rental Housing Corporation\nSimon Fraser University\nTeachers' Pensions Fund\nThe University of British Columbia\nThe University of British Columbia Health Sciences Centre\nUniversity of Victoria\n\"Workers' Compensation Board of British Columbia\nc Workers' Compensation Board Superannuation Fund\n'Included in Section F of the Public Accounts\n 146        REPORT OF THE AUDITOR GENERAL\n1\nAppendix III\nPublic Bodies, of Which the Auditor General was not the Appointed\nAuditor, Whose Financial Statements are Included in Section F of the\nPublic Accounts\nBritish Columbia Buildings Corporation\nBritish Columbia Cellulose Company\nBritish Columbia Development Corporation\nBritish Columbia Ferry Corporation\nBritish Columbia Housing Management Commission\nBritish Columbia Hydro and Power Authority\nBritish Columbia Petroleum Corporation\nBritish Columbia Railway Company\nBritish Columbia Steamship Company (1975) Ltd.\nBritish Columbia Systems Corporation\nHousing Corporation of British Columbia\nInsurance Corporation of British Columbia\nOcean Falls Corporation\nPacific Coach Lines Limited\nScience Council of British Columbia\nSurrey Farm Products Investments Ltd.\nT.S. Holdings Ltd.\nUniversities Council\nUrban Transit Authority\n 147\nAppendix IV\nSections A (pages A1 to A13), B and C of the Public Accounts\nThe material which forms Appendix IV is an excerpt from the Public Accounts of British\nColumbia for the fiscal year ended 31 March 1980.\nL\n","@language":"en"}],"Genre":[{"@value":"Legislative proceedings","@language":"en"}],"Identifier":[{"@value":"J110.L5 S7","@language":"en"},{"@value":"1981_V01_04_001_147","@language":"en"}],"IsShownAt":[{"@value":"10.14288\/1.0368890","@language":"en"}],"Language":[{"@value":"English","@language":"en"}],"Provider":[{"@value":"Vancouver : University of British Columbia Library","@language":"en"}],"Publisher":[{"@value":"Victoria, BC : Government Printer","@language":"en"}],"Rights":[{"@value":"Images provided for research and reference use only. For permission to publish, copy or otherwise distribute these images please contact the Legislative Library of British Columbia","@language":"en"}],"SortDate":[{"@value":"1983-12-31 AD","@language":"en"},{"@value":"1983-12-31 AD","@language":"en"}],"Source":[{"@value":"Original Format: Legislative Assembly of British Columbia. Library. Sessional Papers of the Province of British Columbia","@language":"en"}],"Title":[{"@value":"report of the AUDITOR GENERAL  for the year ended March 31st. 1980","@language":"en"}],"Type":[{"@value":"Text","@language":"en"}],"Translation":[{"@value":"","@language":"en"}],"@id":"doi:10.14288\/1.0368890"}